The COSTLY Mistake You’re Making When Realizing Investment Gains
When you’ve worked hard to grow your investments, the last thing you want is to lose a big chunk to taxes. Whether you’re planning to rebalance your portfolio, pass assets to your heirs, or just wondering whether to sell that winning stock, how you handle investment gains can make a major difference in your financial outcome. In this article, I’ll walk you through the smartest strategies for minimizing or even eliminating taxes on your investment gains—starting with a simple framework and ending with advanced tools for high-net-worth households.
Should You Sell or Hold?
Before even thinking about taxes, ask yourself: is this investment still serving my goals?
If it’s a key piece of your diversified portfolio and still aligns with your long-term plan, there might be no reason to sell just to “lock in gains.” But if you’re overly concentrated—say, you’ve got most of your portfolio in one stock or company—you’re taking on unnecessary risk, especially if you’re nearing retirement. Waiting for a correction could wipe out gains, and in that case, paying a bit of tax now might be worth the stability of diversification.
The tax bite from selling could range from 0% to 20% federally, plus state taxes, depending on your income. But the risk of holding too long? That could cost you far more.
Take Advantage of the 0% Capital Gains Tax Bracket
One of the most overlooked tools in the tax toolkit is the 0% long-term capital gains bracket. In 2025, married couples filing jointly can have up to $96,700 in taxable income and still pay zero federal tax on long-term gains. For single filers, the limit is $48,350.
Taxable income is calculated after deductions—$30,000 for married couples and $15,000 for singles, with additional deductions for those 65 or older. If you time your gains across multiple years to stay within these thresholds, you can avoid taxes entirely.
Gifting Appreciated Securities: A Double Win
If you’re charitably inclined, gifting appreciated stock directly to a qualified nonprofit is a tax-efficient move. You avoid paying capital gains tax entirely, and the charity gets the full market value.
You can also gift appreciated securities to family members in lower tax brackets. Say you’re in the 20% bracket, but your adult child is in the 0% bracket—they may be able to sell the investment and pay no federal tax. Just beware of the “kiddie tax” rules for dependents under 24.
Step-Up in Basis: A Powerful Inheritance Tool
If you’re holding appreciated investments and don’t need to sell them during your lifetime, passing them to heirs can be highly efficient thanks to the step-up in basis. When your heirs inherit the assets, their cost basis resets to the fair market value on the date of your death. That means they can sell immediately—without owing capital gains taxes.
Community property states even allow for a full step-up for jointly owned assets when one spouse dies. In common law states, only half of the value gets the step-up. Either way, it’s an important estate planning consideration.
Offset Gains with Tax Loss Harvesting
Tax loss harvesting involves selling investments that have dropped in value to offset gains in other areas of your portfolio. If you’ve got some winners you want to sell, this strategy can neutralize the tax impact.
Just remember the 31-day wash sale rule—you can’t buy back the same or a substantially identical investment within 31 days or you’ll lose the tax benefit. This is particularly useful for non-core investments that don’t align with your long-term strategy or that you’re looking to rebalance anyway.
Advanced Planning: SMAs for High Net Worth Individuals
If you’ve got significant brokerage, business, or real estate assets, separately managed accounts (SMAs) can be a game-changer. SMAs allow for individualized portfolio management and personalized tax strategies.
You can engage in custom tax loss harvesting, smart rebalancing, and targeted sales that fit your specific tax bracket. This level of control is ideal for investors anticipating a big liquidity event or looking to minimize exposure to tax drag over time.
Taxes can take a serious bite out of your investment returns—but with the right strategies, you can keep more of what you’ve earned. Whether you’re realizing gains, rebalancing your portfolio, or planning your legacy, a little planning goes a long way. Talk to a financial advisor or tax professional to build a personalized approach that aligns with your goals—and your bottom line.
You should always consult a financial, tax, or legal professional familiar about your unique circumstances before making any financial decisions. This material is intended for educational purposes only. Nothing in this material constitutes a solicitation for the sale or purchase of any securities. Any mentioned rates of return are historical or hypothetical in nature and are not a guarantee of future returns.
Past performance does not guarantee future performance. Future returns may be lower or higher. Investments involve risk. Investment values will fluctuate with market conditions, and security positions, when sold, may be worth less or more than their original cost.
