{"id":353976,"date":"2016-04-04T01:48:06","date_gmt":"2016-04-04T06:48:06","guid":{"rendered":"https:\/\/ability-fl-prod.internetbrands.com\/ability-law\/tax\/federal-taxes\/what-are-capital-gains.html"},"modified":"2026-07-06T08:43:19","modified_gmt":"2026-07-06T13:43:19","slug":"what-are-capital-gains","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/tax\/federal-taxes\/what-are-capital-gains.html","title":{"rendered":"Strategies to Legally Minimize Your Capital Gains Tax Burden"},"content":{"rendered":"\n
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Strategies to Legally Minimize Your Capital Gains Tax Burden<\/h1>\n\n
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\n By J.P. Finet, J.D.<\/a> | Legally reviewed by Laura Temme, Esq.<\/a>\n | Last updated\n
\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
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This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

\n \n <\/i>\n Fact-Checked\n <\/summary>\n\n
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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n\n\n

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Key Takeaways<\/h2>\n

Capital gains tax<\/span> minimization strategies are legal methods investors use to reduce or defer taxes owed on profits from selling investment assets. Common strategies include tax-loss harvesting<\/span> to offset gains with losses, donating appreciated assets to charity, using 1031 exchanges for real estate<\/span>, and investing in opportunity zone funds. These approaches can significantly lower your tax bill<\/span> when selling stocks, real estate<\/span>, or other capital assets<\/span>.<\/p>\n\n <\/div>\n <\/div>\n<\/div>\n\n\n

Most Americans who have invested in assets such as stocks,\u00a0real estate<\/span>, or commodities understand that when they cash out, they will be subject to\u00a0capital gains taxes<\/span>\u00a0on their profits. Indeed, one of the most common reasons to put your money into what are known as long-term capital assets<\/span> is that the top capital gains tax<\/span> rate<\/span> is significantly lower than the income tax<\/span><\/a> rate for wealthy investors.<\/p>\n

While that can help, the top capital gains tax<\/span> rate<\/span> remains 20%, which still cuts into your profits. Fortunately, there are legal ways to significantly reduce, or at least defer, the\u00a0capital gains tax<\/span>\u00a0you owe when you sell assets purchased as investments.<\/p>\n

The U.S. taxes capital gains at a lower rate<\/span> as part of Congress\u2019s efforts to encourage investment in business assets. The lower tax rates also reflect the downside risk of investing in capital assets<\/span>, as any investment may lose money. This can still yield\u00a0tax benefits<\/span>,\u00a0as investors can use those losses to offset income from other sources.<\/p>\n

One final key to minimizing your\u00a0tax bill<\/span>\u00a0on\u00a0long-term capital gains<\/span>\u00a0is\u00a0remembering that you can choose when to buy and sell assets. Many view their long-term capital asset<\/span> purchases as \u201cbuy and hold\u201d investments they plan to own until they need to sell to fund their retirement, pay for college, or cover another major expense. Being able to choose when to buy or sell your\u00a0capital asset<\/span>\u00a0makes it a flexible investment option, allowing investors to time their purchases or sales for maximum tax benefit<\/span>.<\/p>\n

In this article, we\u2019ll discuss a few strategies you can utilize to legally reduce your capital gains <\/span>tax<\/span> burden<\/span> and where to find help creating a plan tailored to your assets. Let\u2019s start by reviewing capital gains tax<\/span> calculations and current rates.<\/p>\n

What Is Capital Gains Tax<\/span>?<\/h2>\n

In general terms, the capital gains tax<\/span> is a tax on the profits you earn from the sale or other disposition of a capital asset<\/span> that was held for at least one year. The tax is paid on the gain realized on the sale, not the entire amount received. This is usually the sales price<\/span> minus the taxpayer<\/span>\u2019s cost basis<\/span> in the asset. The cost basis<\/span>\u00a0is often your initial investment in the asset, including the purchase price<\/span>, sales taxes, and commissions.<\/p>\n

The profits from the sale of assets held for less than one year, even if they qualify as capital assets<\/span>, are short-term capital gains<\/span> and taxed at the ordinary <\/span>income<\/span> tax<\/span> rate<\/span>. Ordinary income<\/span> is usually taxed at a higher rate.<\/p>\n

Capital assets<\/span> often include:<\/p>\n