High-income investors reduce capital gains taxes through a combination of strategies: timing the recognition of gains and losses across tax years, harvesting losses to offset realized gains, using tax-advantaged accounts to shelter growth, coordinating charitable giving with appreciated assets, and managing the interaction between capital gains income and the 3.8% net investment income tax. None of these strategies require exotic structures or aggressive positions. They require knowing your current tax picture well enough to act before December 31 — when the window to change the outcome is still open. Mid-year is the right time to build that picture.
For most investors, capital gains are a side effect of a good portfolio — appreciated positions, dividends reinvested, funds rebalanced. For high-income investors, capital gains are a material tax event that can add tens of thousands of dollars to an annual tax bill if not planned for deliberately.
The federal long-term capital gains rate structure has three tiers: 0%, 15%, and 20%. High earners pay the top 20% rate on long-term gains. But the effective rate is higher than that for most high-income taxpayers because the 3.8% net investment income tax (NIIT) applies to net investment income for individuals with modified adjusted gross income above $200,000 ($250,000 for married filing jointly). That brings the effective federal rate on long-term gains to 23.8% at the top — before state taxes.
The planning opportunity is not to avoid realizing gains. It is to manage when, how, and in what context gains are realized — so the tax cost is as low as it can be given the investor's full financial picture. That requires coordination between investment decisions and tax strategy, which is exactly the kind of integrated advisory work that Business Advisory and Accounting Partners provides to individual and household clients.
Tax-loss harvesting is the practice of selling investments that have declined in value to realize a loss, which can then be used to offset realized capital gains elsewhere in the portfolio. The loss offsets gains dollar for dollar, reducing the amount of gain subject to tax. If losses exceed gains in a given year, up to $3,000 of excess loss can be deducted against ordinary income, with any remaining excess carried forward to future years.
The mechanics are straightforward. The discipline required to execute them well is not. The wash-sale rule — which disallows a loss if the same or substantially identical security is repurchased within 30 days before or after the sale — requires careful coordination between the harvesting decision and the portfolio rebalancing that follows. Harvesting a loss and then immediately repurchasing the same fund forfeits the deduction.
Tax-loss harvesting is most valuable when it offsets short-term gains taxed at ordinary income rates, which can reach 37% at the top bracket. Using losses to offset long-term gains taxed at 23.8% is still valuable, but the math is more favorable when the gains being sheltered carry higher rates. A tax advisor will prioritize loss harvesting against the highest-rate gains first.
The 3.8% net investment income tax applies to the lesser of net investment income or the amount by which modified adjusted gross income exceeds the threshold — $200,000 for single filers, $250,000 for married filing jointly. Net investment income includes interest, dividends, capital gains, rental income from passive activities, and income from passive business interests.
For high earners already above the NIIT threshold, the surcharge applies to every dollar of net investment income with no phase-out. That means a portfolio generating $200,000 in capital gains adds $7,600 in NIIT on top of the regular capital gains tax — a cost that can be modeled and planned for but cannot be eliminated through after-the-fact structuring.
What can be managed is the interaction between investment income and other planning moves. A Roth conversion in the same year as a large capital gain event increases MAGI and may push more income into NIIT territory. Timing decisions across income sources — gains, conversions, Roth contributions, business distributions — benefit from being modeled together rather than in isolation.
The distinction between short-term and long-term capital gains is one of the most straightforward and impactful decisions in investment tax planning. Short-term gains — on assets held one year or less — are taxed at ordinary income rates, which reach 37% at the top bracket. Long-term gains — on assets held more than one year — are taxed at the preferential rates of 0%, 15%, or 20% depending on taxable income.
For a high-income investor in the 37% ordinary income bracket, the difference between selling a position at 11 months versus 13 months can represent a 13 to 17 percentage point difference in the tax rate on that gain. According to the Tax Foundation, holding period management is among the highest-return-on-effort tax strategies available to individual investors because it requires only a timing decision, not a transaction or structural change.
A mid-year review of the portfolio identifies positions approaching the one-year threshold where the holding period decision is still in play — creating an opportunity to defer a sale by weeks or months and convert a short-term gain into a long-term one.
Donating appreciated securities directly to a qualified charity — rather than selling the securities and donating cash — is one of the most tax-efficient giving strategies available to high-income investors. The donor avoids recognizing the capital gain entirely, receives a charitable deduction for the full fair market value of the donated securities, and the charity receives the full value without any tax cost.
According to the AICPA, donor-advised funds (DAFs) extend the efficiency of this strategy by allowing a large contribution of appreciated securities in a single year — capturing the full deduction in a high-income year — while grants to specific charities can be made over time according to the donor's wishes. For investors with concentrated positions or appreciated holdings they want to liquidate, a DAF can eliminate the capital gain tax entirely on the donated portion.
The elevated SALT cap of $40,000 through 2029 under the OBBBA increases the value of itemized deductions for high-income filers in high-tax states, which in turn increases the marginal value of charitable deductions that can be stacked alongside SALT on a Schedule A.
Asset location — the strategic placement of different investment types across taxable accounts, tax-deferred accounts, and tax-free Roth accounts — is a multi-year capital gains management tool that operates quietly in the background. The principle is straightforward: assets that generate the most taxable income (high-yield bonds, REITs, actively managed funds with high turnover) are better held in tax-deferred or tax-free accounts where that income is sheltered. Assets that generate primarily long-term capital gains and qualified dividends (broad equity index funds, individual growth stocks) are better held in taxable accounts where their favorable rate treatment can be used.
Proper asset location does not reduce returns — it reduces the tax drag on returns. According to Wolters Kluwer, the after-tax return difference between an optimally located portfolio and a randomly located one can be meaningful over a 10- to 20-year horizon, particularly for high-income investors whose taxable income makes interest and ordinary dividend income expensive.
This is a fictional example to illustrate how Business Advisory and Accounting Partners would advise a client in this situation.
Marcus is a senior partner at a law firm in Ohio, earning approximately $520,000 in annual income. He and his wife have a taxable brokerage account with roughly $1.8 million in holdings — a mix of individual stocks, mutual funds, and ETFs accumulated over 15 years. He also has significant unrealized gains across several positions he has been reluctant to sell because of the tax cost.
In mid-2026, Marcus's investment advisor recommended rebalancing the portfolio to reduce concentration in a few overweighted positions. Marcus's instinct was to defer the rebalancing until he had a clearer sense of what it would cost in taxes. He had no tax projection for the year and no clear picture of his current capital gains exposure.
Business Advisory and Accounting Partners would begin with a mid-year tax projection that quantified Marcus's current income, his existing realized gains year-to-date, and the NIIT and capital gains tax cost of the proposed rebalancing at his income level. With taxable income above the 20% long-term gains threshold and MAGI well above the NIIT threshold, the effective federal rate on any long-term gains would be 23.8% — before Ohio state tax.
From that starting point, the advisory team would identify three coordinating moves. First, a review of the portfolio for positions with unrealized losses that could be harvested before year-end to offset a portion of the gains triggered by rebalancing. Second, a recommendation to route a planned charitable contribution through a donor-advised fund funded with appreciated securities rather than cash — eliminating capital gain recognition on that portion entirely and generating a deduction at full fair market value. Third, a holding period check on the positions Marcus was considering selling, identifying two positions within weeks of reaching the one-year mark where deferring the sale briefly would convert short-term gains to long-term.
The combined effect of these three moves meaningfully reduced the after-tax cost of the rebalancing Marcus needed to do anyway — without changing his investment thesis or taking any aggressive positions.
If you see pieces of your own situation in this example, it may be time to sit down with a Business Advisory and Accounting Partners business advisor and build a capital gains plan for the rest of 2026.
Business Advisory and Accounting Partners, powered by Harness, treats capital gains planning as a coordination problem — connecting investment decisions to their tax consequences before they are executed, not after. The firm works with high-earning households where investment income is a material part of the annual tax picture, and where the gap between uncoordinated and coordinated decision-making shows up directly in the after-tax return.
The firm's individual advisory work integrates capital gains strategy with Roth conversion decisions, retirement income planning, charitable giving, and business income — because these decisions interact, and optimizing them in isolation produces worse outcomes than modeling them together. That is what a proactive advisory relationship looks like in practice.
An individual tax planning conversation at Business Advisory and Accounting Partners focused on capital gains will cover your current income and projected year-end tax picture, the realized and unrealized gains in your taxable accounts, the specific strategies available given your situation — loss harvesting, holding period management, charitable giving, asset location — and how capital gains interact with any other income events planned for 2026.
You will leave with a clear picture of your capital gains exposure, the moves still available before December 31, and a coordinated plan that connects your investment decisions to your tax outcome. There is no obligation to move forward beyond the meeting. It is a professional conversation designed to give you clarity and a specific next step.
| If you want a capital gains plan built around your actual investment picture and 2026 tax situation, schedule a conversation with Business Advisory and Accounting Partners powered by Harness. |
Book your individual tax planning consultation at: https://busadvisory.com/individual-tax-advisory-planning/
The most effective strategies for reducing capital gains taxes are tax-loss harvesting to offset realized gains, holding investments more than one year to qualify for preferential long-term rates, donating appreciated securities directly to charity or a donor-advised fund to avoid recognizing gain entirely, placing high-income-generating assets in tax-deferred accounts to reduce taxable investment income, and timing the realization of gains across tax years to manage bracket exposure. The right combination depends on your income level, portfolio composition, and other income events in the same year.
The net investment income tax (NIIT) is a 3.8% surtax that applies to net investment income — including capital gains, interest, dividends, and passive rental income — for individuals whose modified adjusted gross income exceeds $200,000 ($250,000 for married filing jointly). For high-income investors already above the threshold, the NIIT applies to every dollar of net investment income with no phase-out, bringing the effective federal long-term capital gains rate to 23.8% at the top bracket before state taxes.
The wash-sale rule disallows a capital loss if the taxpayer purchases the same or a substantially identical security within 30 days before or after the sale that generated the loss. The disallowed loss is added to the cost basis of the repurchased security, effectively deferring — but not eliminating — the tax benefit. To successfully harvest a loss and maintain market exposure, investors typically replace the sold security with a similar but not substantially identical fund or security during the 30-day window.
The One Big Beautiful Bill Act made the existing long-term capital gains rate structure permanent. The three-tier structure — 0%, 15%, and 20% depending on taxable income — remains in place with no scheduled expiration. The thresholds that determine which rate applies are adjusted for inflation annually. For 2026, the 20% rate applies to taxable income above $545,500 for single filers and $613,700 for married filing jointly, per IRS Revenue Procedure 2025-32. The NIIT thresholds remain at $200,000 and $250,000 and are not inflation-adjusted.
When you donate appreciated securities held more than one year directly to a qualified charity or donor-advised fund, you avoid recognizing the capital gain that would result from selling those securities, and you receive a charitable deduction for the full fair market value of the donated securities. The combined benefit is the elimination of capital gains tax on the donated amount plus a deduction at full value — a significantly more tax-efficient outcome than selling the securities, paying capital gains tax, and donating the after-tax proceeds.
Mid-year — now. By July you have enough actual income data to project your full-year tax picture accurately, and you still have time to execute strategies like loss harvesting, holding period management, and charitable giving before December 31. Waiting until year-end compresses the window for all of these moves and eliminates some entirely. Business Advisory and Accounting Partners works with high-income individuals and households on capital gains strategy as part of an ongoing individual tax advisory engagement. Schedule a conversation at https://busadvisory.com/individual-tax-advisory-planning/
