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?
Lowball offers or inspection surprises that could blow up a deal. You second-guess whether to lock in gains on “loser” stocks in hopes they’ll bounce back. Then there’s the FOMO… what if you sell today and the price doubles next year?
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 taxes hit when selling investments or property.
How long should I hold on to assets?
The difference between “short-term” and “long-term” is one of the simplest ways to cut your capital gains taxes.
- 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.
But if you waited just a month or two longer, crossing that “one year and one day” mark, you’d qualify for the 15% rate. Your tax would drop to about $750.
That’s more than a 30% reduction just for waiting a few weeks. Allowing you to hold on to more of the gains from your investment.
Can I use my losing investments to offset gains?
Yes, through tax-loss harvesting. Here’s how it works:
- 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 directly 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—like wages—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, that disallowed loss is added to your new cost basis. But if you repurchase in an IRA or Roth IRA, the loss is permanently disallowed and not added to your IRA basis.
This rule applies across your accounts (and IRAs, with special consequences). Most brokers and tax pros treat purchases in a spouse’s account as triggering the rule too, but treatment can be fact-specific, so coordinate trades.
What if my income is low this year?
The tax code allows certain Milwaukee taxpayers to pay 0% on long-term capital gains if their taxable income is below a threshold.
For 2025, the 0% rate applies under about $48,350 (single) / $96,700 (MFJ). 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?
This is where the step-up in basis comes in.
When someone passes away, their heirs generally receive appreciated assets at their current market value. Not the original purchase price. That means all the unrealized gains disappear for tax purposes.
So, if your parent bought their Southeastern Wisconsin rental property for $50,000 decades ago and it’s worth $300,000 today, you’d inherit it with a basis of $300,000. If you sell it immediately for that amount, 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 31st?
Year-end is crunch time for planning for capital gains taxes. Here are your must-do moves:
1. Harvest losses early. Identify any investments showing losses and consider selling before year-end to offset gains. And of course, remember the wash sale rule if you plan to repurchase.
2. Double-check holding periods. If an asset is close to the one-year mark, consider waiting until January to sell.
3. See where your income lands. If you’re in the 0% capital-gains zone, you could sell just enough investments to use that “free” space.
4. Use appreciated assets for charity. Donating stock or property instead of cash gives you a double benefit: you get a charitable deduction for the full fair market value and avoid paying tax on the built-in gain.
5. Watch your closing date for property sales. For real estate, your tax year depends on the closing date. If you’re selling near year-end and want to push the tax hit into next year, make sure closing happens in January.
FAQs
“What’s the difference between long-term and short-term capital gains?”
Short-term = one year or less, taxed as ordinary income… up to 37% federally (plus any state tax).
Long-term = more than one year, taxed at 0%, 15%, or 20%, depending on your income.
“Does the 3.8% Net Investment Income Tax apply to everyone?”
Not everyone. 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. Your gains and losses are netted together. Just know that 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, not gains. 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. Capital-gain distributions are taxable to you in the year paid (even if automatically reinvested).
Final thoughts
There’s timeliness to this matter as well. By December 31st, most key moves that affect your capital gains taxes (like harvesting losses and realizing a loss to claim the loss deduction) need to be in the works. Even the “wash sale” rule can trip you up if you’re not careful with year-end trades.
A few small, well-timed steps now can mean thousands saved next spring. So, let’s get a year-end review on the calendar: