Deferring or Reducing Capital Gains Tax
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Capital gains tax can be deferred or reduced if a seller utilizes the proper sales method and/or deferral technique. There are many such sales techniques and methods, each of which has its benefits and drawbacks. See some ways to defer and/or reduce capital gains tax below.
- (US Only) - Tax Loss Harvesting - Realized tax losses can carry forward forever and can be applied to offset capital gains months or years in the future. Discretionary Overlay managers have developed new trading methodologies that have evolved tax loss harvesting into a year-round strategy, as opposed to year-end, which is standard to most financial advisors, and is paramount in reducing the capital gains tax burden on affluent investors.
- Charitable trust - Defer and reduce capital gains by giving equity to a charity.
- Installment Sale - Defer capital gains by taking payments from a buyer over a period of years. No protection from buyer default.
- (US only) Deferred Sales Trust- Allows the seller of property to defer capital gains tax due at the time of sale over a period of time.
- (US only) 1031 exchange - Defer tax by exchanging for "like kind" property—however, generally available only for real estate and tangible property, both of which must be business-related. Pay capital gains when they are realized (i.e. when subsequently sold).
- (US only) Roth IRA - Transactions inside an account (including capital gains, dividends, and interest) do not incur a current tax liability.
- (US only) Structured sale annuity (aka Ensured Installment Sale) - Defer and reduce capital gains tax while gaining safety and a stream of guaranteed income.
- (US only) Self Directed Installment Sale (SDIS) Allows for the deferral of capital gains taxes while removing the risks from buyer default under a traditional installment sale.
- (US only) (historical) Private annuity trust - No longer a valid tax deferral tool.
- (Canada only) - Utilize a Tax-Free Savings Account
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