When it comes to selling high-value assets like real estate, businesses, or investments, capital gains taxes can take a significant bite out of your profits. But with smart planning, you can minimize or defer these taxes. Below, we explore 12 powerful tax strategies to help you keep more of your hard-earned money. Whether you’re an investor, business owner, or planning your financial future, these strategies offer practical ways to ease the tax burden. Always consult a tax professional to tailor these approaches to your unique situation.
Sometimes, the simplest solution is the best. Paying the capital gains tax upfront means selling your asset and settling the tax bill immediately—potentially 37% plus state taxes, depending on your location. While this approach reduces your proceeds significantly, it’s straightforward and avoids the need for complex planning. Consider this if you value simplicity and want to move on quickly, but weigh it against other tax-deferral options.
An Installment Sales Trust is a powerful tool for deferring capital gains taxes. You transfer your asset to a trust, which sells it to a buyer. The trust then pays you in installments, and you only pay taxes on the income as you receive it. This spreads out your tax liability over time, reducing the immediate tax hit and providing a steady income stream. It’s an excellent option for selling high-value assets like real estate or a business.
A favorite among real estate investors, the 1031 Exchange allows you to defer capital gains taxes by selling one investment property and reinvesting the proceeds into another like-kind property. Strict IRS rules apply, such as identifying a replacement property within 45 days and closing within 180 days. When executed correctly, you can defer taxes indefinitely, building wealth through reinvestment.
A Delaware Statutory Trust (DST) is ideal for real estate investors seeking passive income without management responsibilities. By investing in a professionally managed real estate portfolio, often as part of a 1031 exchange, you can defer capital gains taxes while diversifying your holdings. DSTs offer steady income without the hassle of dealing with tenants or property maintenance, making them a hands-off investment option.
In an Owner Financial Installment Sale, you sell your asset and finance the sale yourself, receiving payments from the buyer over time. This spreads out your tax liability and allows you to earn interest on the sale. It’s a solid strategy if you trust the buyer to make payments and want to defer taxes while generating income, but ensure you have a reliable buyer to avoid risks.
Relocating to a state with no income tax, such as Texas, Florida, or Nevada, can save you significant state capital gains taxes—potentially 4% or more. By establishing residency in one of these states before selling a major asset, you can keep more of your proceeds. Consult a tax professional to ensure you meet residency requirements and comply with state regulations.
If moving isn’t an option, consider creating a trust in a no-income-tax state like Nevada or Wyoming. By transferring assets to such a trust, you may shield income from state taxes. This strategy is particularly useful for high-net-worth individuals selling assets or generating income. Work with a tax advisor to ensure the trust complies with IRS rules and achieves your tax-saving goals.
A Charitable Remainder Trust (CRT) offers a win-win for tax savings and philanthropy. You transfer assets to a trust, which sells them tax-free. You receive income from the trust for a set period or your lifetime, and the remaining assets go to a charity of your choice when the trust ends. This strategy provides a tax deduction, defers capital gains taxes, and supports a cause you care about.
Setting up a Private Foundation allows you to manage your charitable giving while reducing taxes. By donating appreciated assets like stocks or real estate, you can take a tax deduction for the fair market value and avoid capital gains taxes on the sale. You also control how the foundation distributes funds to charities, making it ideal for those who want to leave a legacy and minimize taxes.
Investing in Opportunity Zones, designated areas where the government encourages development, offers significant tax incentives. By reinvesting capital gains into an Opportunity Zone fund, you can defer taxes until 2026 or when you sell the investment. If you hold the investment for 10 years, any new gains are tax-free. This strategy supports community development while reducing your tax bill.
For those interested in energy investments, Oil and Gas Exploration offers tax benefits for small producers. Deductions for intangible drilling costs and depletion allowances can lower your effective tax rate, potentially to as low as 6% after credits. While this strategy can reduce your tax liability, it carries investment risks, so careful consideration and expert advice are essential.
Investing in Green Solar and Wind Energy projects comes with government tax credits that can significantly offset your tax liability. By supporting renewable energy initiatives like solar panels or wind turbines, you not only reduce your taxes but also contribute to a sustainable future. This strategy combines financial benefits with environmental impact.
These 12 tax strategies—from paying the tax upfront to investing in green energy—offer a range of options to manage or reduce capital gains taxes. The right strategy depends on your financial goals, risk tolerance, and timeline. Whether you’re looking to defer taxes, diversify investments, or support charitable causes, there’s a solution for you. Planning ahead is key to maximizing these opportunities.
Start by reviewing your assets and financial objectives. Are you planning to sell a business or property? Do you want to invest passively or support a cause? Select one or two strategies that align with your goals and research them further. Most importantly, consult a qualified tax advisor or financial planner to ensure these strategies are implemented effectively and comply with IRS regulations.
Disclaimer: This blog is for informational purposes only and does not constitute financial or tax advice. Always consult a professional before making investment or tax decisions.
Horizon Wealth is a registered investment advisor. The information presented in this publication is the opinion of Horizon Wealth and does not reflect the view of any other person or entity. The information provided is believed to be from reliable sources but no liability is accepted for any inaccuracies. This is for information purposes and should not be construed as an investment recommendation. Past performance is no guarantee of future performance. Statements in this publication are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in this publication. Investing in alternative and private offerings involve risks, including the potential loss of principal. Always consult an investment advisor regarding your specific situation.