Capital Gains Considerations
First of all, if you are only holding assets in IRAs or 401(k)s, this is largely irrelevant and you should stop reading now.
If you hold assets in individual accounts or trust accounts, this is something that needs to be understood.
Short-term vs Long-term Taxation
Short-term capital gains treatment will apply to assets sold after being held for less than 1 year. If you sell a such a position, ordinary income tax will be levied. This will be the same rate at which you pay tax from income you earn from your employer, or business.
Long-term capital gains tax will apply to assets you sell which you have owned for over 1 year. They will receive favorable tax rates depending on your income.
2025 Long-Term Capital Gains Tax Rates Based on Income
| Tax Rate | Single | Married Filing Jointly | Head of Household | Married Filing Separately |
|---|---|---|---|---|
| 0% | Up to $48,350 | Up to $96,700 | Up to $64,750 | Up to $48,350 |
| 15% | $48,351 to $533,400 | $96,701 to $600,050 | $64,751 to $566,700 | $48,351 to $300,000 |
| 20% | Over $533,400 | Over $600,050 | Over $566,700 | Over $300,000 |
To re-position a highly appreciated portfolio, it is important to understand what the tax consequence will be. If you sell a position with large gains, in some cases the tax consequence may negate the benefit of making changes.
For instance, if you sell a long-term holding and are in the highest income category, you must believe that the new holding will increase very significantly to outweigh the setback in tax liability caused by the sale.
Tax Basis Step-Up
If the goal is to leave wealth to family, consider the following:
A tax basis step-up allows heirs to receive an inherited asset at its market value on the date of the decedent’s death, which eliminates capital gains tax entirely on any appreciation that occurred during the decedent’s lifetime.
As always, think about the long game and consult with a qualified professional.
-Zac
