Thinking of Selling Investments or Properties? Read This

Key Takeaways

• Hold for at least one year and a day to qualify for lower long-term capital gains rates.
• Use losses to offset gains through tax-loss harvesting (but beware the wash sale rule).
• Time your sale during a lower-income year to take advantage of the 0% capital gains bracket.
• Inherited assets generally get a step-up to current market value, erasing past gains. Exceptions exist (for example, retirement accounts and other "income in respect of a decedent" items don't get a step-up).
• Before December 31, review holdings for losses, check holding periods, and time sales strategically.

If you've ever sold an investment or property, you know the tug-of-war it creates: do you sell now or wait for a better price? It's stressful enough without adding tax worries on top of it.

So let's talk strategy. There are several ways to soften, and sometimes even eliminate, the capital gains tax hit when selling investments or property.

How long should I hold on to assets?

• Short-term gains (assets held a year or less) are taxed just like regular income, up to 37% federally, plus any state tax.
• Long-term gains (held more than a year) are taxed at 0%, 15%, or 20%, depending on your income.

Say you bought stock for $10,000 and sold it 11 months later for $15,000 while in the 22% bracket. Your tax bill would be about $1,100. If you waited until you crossed the "one year and one day" mark, you'd qualify for the 15% rate and your tax would drop to about $750. That's more than a 30% reduction just for waiting a few weeks.

Can I use my losing investments to offset gains?

Yes, through tax-loss harvesting:

• You sell an investment that has gone up, creating a taxable gain.
• You also sell another investment that has gone down, realizing a loss.
• That loss offsets your gain, dollar for dollar.

If your losses exceed your gains, you can use up to $3,000 ($1,500 if married filing separately) to reduce ordinary income and carry any extra forward indefinitely.

But watch out for the wash sale rule. If you repurchase too soon, the loss doesn't count right now. In a regular taxable account, the disallowed loss is added to your new cost basis. If you repurchase in an IRA or Roth IRA, the loss is permanently disallowed. Coordinate trades across all your accounts, including a spouse's.

What if my income is low this year?

For 2025, the 0% long-term capital gains rate applies under about $48,350 of taxable income (single) or $96,700 (married filing jointly). Remember: gains stack on top of your other taxable income. If your income is low one year (say after retirement or during a slow season), you might be able to sell and pay zero federal tax on your gains.

What if I inherit an asset instead of receiving it as a gift?

When someone passes away, heirs generally receive appreciated assets at current market value, not the original purchase price. If your parent bought a rental property for $50,000 decades ago and it's worth $300,000 today, you'd inherit it with a basis of $300,000. Sell it immediately for that amount and your taxable gain is $0.

But if they give it to you while they're still alive, you keep their original purchase price as your basis, and you'd owe tax on all the growth when you sell.

What should I do before December 31?

• Harvest losses early. Identify investments showing losses and consider selling before year-end to offset gains, minding the wash sale rule.
• Double-check holding periods. If an asset is close to the one-year mark, consider waiting until January to sell.
• See where your income lands. If you're in the 0% capital gains zone, you could sell just enough to use that space.
• Use appreciated assets for charity. Donating stock or property gives you a deduction for full fair market value and avoids tax on the built-in gain.
• Watch your closing date for property sales. Your tax year depends on the closing date, so a January closing pushes the tax into next year.

FAQs

"Does the 3.8% Net Investment Income Tax apply to everyone?"

No. It applies if your modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly).

"Can I offset real estate gains with stock market losses?"

Yes. Gains and losses are netted together. Part of a rental-property gain tied to prior depreciation can be taxed at up to 25%.

"Can I sell an investment and buy it back immediately if it's gone up?"

Yes. The wash sale rule only applies to losses. Selling an appreciated investment and buying it back resets your cost basis, sometimes called a "gain harvest."

"If I sell my home, do I have to pay capital gains tax?"

Maybe not. If it's your primary residence, you can exclude up to $250,000 of gain ($500,000 if married filing jointly), as long as you've lived there two of the last five years.

"Are mutual fund capital gains distributions taxable even if I don't sell?"

Yes. They are taxable in the year paid, even if automatically reinvested.

A few small, well-timed steps before year-end can mean thousands saved next spring.