What Are Capital Gains Tax Strategies?
Capital gains taxes apply to the profit from selling assets held for investment or business purposes. Under IRC Section 1, long-term capital gains on assets held over one year are taxed at preferential federal rates of 0%, 15%, or 20% depending on taxable income, compared to ordinary income rates of up to 37% (2025). The 3.8% Net Investment Income Tax (NIIT) under IRC Section 1411 applies to taxpayers above $200,000 (single) or $250,000 (married filing jointly), bringing the effective top federal rate on long-term gains to 23.8%.
Short-term capital gains on assets held one year or less receive no preferential treatment and are taxed as ordinary income. This rate differential of up to 17 percentage points between ordinary income and long-term capital gains creates the foundation for multiple strategies within the DEAPR framework.
How Do Capital Gains Strategies Work?
Capital gains strategies span all five DEAPR components, each governed by specific Internal Revenue Code provisions.
Defer strategies postpone gain recognition to a later tax year. Under IRC Section 1400Z-2, Qualified Opportunity Zones defer gains invested within 180 days. Under IRC Section 1031, like-kind exchanges defer gains on real property swaps. Under IRC Section 453, installment sales spread gain recognition across the payment period. Deferred sales trusts provide an additional deferral mechanism through structured installment obligations.
Eliminate strategies remove the gain from taxable income entirely under specific conditions. Under IRC Section 1202, QSBS can exclude up to $10 million in gains on qualified C-corporation stock held for five or more years. Donating appreciated stock to a qualified 501(c)(3) charity may eliminate the capital gain while providing a fair market value deduction under IRC Section 170.
Arbitrage strategies exploit the rate differential between ordinary income (37%) and long-term capital gains (20%). Holding period management converts short-term gains into long-term gains. Income-type conversion restructures compensation or business income into capital gain treatment where permitted by law.
Pay Now, None Later strategies use Roth conversions during low-income years under IRC Section 408A. Investing Roth funds in appreciating assets produces gains that are never taxed upon qualified withdrawal.
Reduce strategies lower the net tax cost of realized gains. Charitable Remainder Trusts under IRC Section 664 avoid gain recognition on contributed assets. Tax-loss harvesting offsets gains with realized losses, subject to the $3,000 net loss limitation against ordinary income under IRC Section 1211(b).
When Do Entrepreneurs Use Capital Gains Strategies?
Business sales represent the largest capital gains event most entrepreneurs experience. A single exit can produce millions in taxable gains, making pre-sale planning essential. Structuring the entity as a C-Corp years in advance may preserve QSBS eligibility under IRC Section 1202.
Stock liquidations arise when diversifying concentrated equity positions. Charitable giving of appreciated shares, installment sales under IRC Section 453, and exchange funds each provide different tax treatments for the same diversification goal.
Real estate transactions involving investment or commercial property generate capital gains that can be deferred through IRC Section 1031 exchanges or reduced through cost segregation combined with reinvestment strategies.
Portfolio rebalancing involves managing gains and losses across the investment portfolio. Harvesting losses to offset gains and using the $3,000 annual excess loss deduction against ordinary income helps manage the overall tax burden across years.
How Does Dew Wealth Approach Capital Gains Planning?
Capital gains planning at Dew Wealth begins years before any anticipated sale. The Fractional Family Office® coordinates entity structure decisions (C-Corp for QSBS eligibility under IRC Section 1202), holding period management, charitable vehicle timing, and QOZ eligibility to reduce the tax impact on each gain event to the extent permitted by law.
No single strategy eliminates all capital gains exposure. IRC Section 1202 has a $50 million gross asset ceiling and industry exclusions. IRC Section 1031 applies only to real property. IRC Section 1400Z-2 requires investment in designated census tracts with specific substantial improvement requirements. Each strategy carries its own qualification requirements, holding periods, and compliance obligations that must be evaluated against the specific transaction.