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6 Strategies to lower your captial gain tax

Capital gains tax can take a big bite out of your investment profits, but there are strategies you can use to minimize this tax burden. Whether you're a seasoned investor or just starting out, understanding these strategies can help you keep more of your hard-earned money. Here are six strategies to consider:

  1. Hold Investments for the Long Term: One of the most effective ways to lower your capital gains tax is to hold your investments for more than one year. In the United States, investments held for longer than a year are subject to the long-term capital gains tax rate, which is typically lower than the short-term capital gains tax rate.
  2. Offset Gains with Losses: Another strategy is to offset your capital gains with capital losses. If you have investments that have decreased in value, selling them at a loss can help offset the capital gains tax you owe on other investments. This strategy is known as tax-loss harvesting and can be an effective way to lower your overall tax bill.
  3. Take Advantage of Tax-Deferred Accounts: Contributing to tax-deferred retirement accounts such as a 401(k) or traditional IRA can also help lower your capital gains tax. By investing in these accounts, you can defer paying taxes on your gains until you withdraw the money in retirement, potentially allowing you to pay a lower tax rate.
  4. Use the Home Sale Exclusion: If you're selling your primary residence, you may be eligible for the home sale exclusion. This allows you to exclude up to $250,000 of capital gains ($500,000 for married couples filing jointly) from your taxable income if you meet certain ownership and use requirements.
  5. Invest in Qualified Opportunity Zones: Investing in qualified opportunity zones (QOZs) can also help lower your capital gains tax. By investing capital gains in a QOZ fund, you can defer paying taxes on those gains until 2026 or until you sell your investment, whichever comes first. In addition, if you hold your investment in the QOZ fund for at least 10 years, you may be able to exclude all of the capital gains from your investment from taxation.
  6. Gift Appreciated Assets: Finally, gifting appreciated assets to family members or charity can help lower your capital gains tax. By gifting these assets, you may be able to avoid paying capital gains tax altogether, as the recipient will receive the assets at their current fair market value, potentially avoiding any capital gains tax when they sell the assets.

In conclusion, there are several strategies you can use to lower your capital gains tax. By holding investments for the long term, offsetting gains with losses, contributing to tax-deferred accounts, taking advantage of the home sale exclusion, investing in qualified opportunity zones, and gifting appreciated assets, you can minimize the impact of capital gains tax on your investment returns. It's always a good idea to consult with a tax professional

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