How to Avoid Capital Gains Tax on Stocks

If you’re looking for how to avoid capital gains tax on stocks, there are several strategies that can help you minimize or defer taxes. Options include holding investments for more than a year to benefit from lower long-term capital gains rates, using tax-loss harvesting and taking advantage of tax-advantaged accounts to reduce your taxable gains. The right ways for you will depend on your long-term financial goals. If you have questions about taxes and strategies to minimize them, consider speaking with a financial advisor.

What Are Capital Gains Taxes?

Capital gains taxes are taxes owed when you sell an asset like a stock for a profit. The tax rates vary depending on how long you held the investment. If you sell it for a loss, you do not owe any taxes on that transaction. So a capital gain on a stock you own would be the profit you receive that is above what you originally paid for it

For example, if you bought one share of John Doe Inc. at $10 and end up selling it for $100, you would have a $90 capital gain. How long you hold that asset will depend on whether the profit is a long- or short-term gain. Here’s a look at the differences between the two types of gains:

• Short-term capital gains: When you’ve held the stock for one year or less, these are called short-term capital gains. Short-term capital gains are taxed as ordinary income, like the money earned from a job.
• Long-term capital gains: Long-term capital gains, which come from assets that are sold for a profit after more than a year, receive preferential treatment in the Federal tax code. Long-term capital gains tax rates are lower than ordinary income tax rates.

How Capital Gains Are Taxed on Stocks

The tax rates for the capital gains you earn on your stocks are going to be determined by three factors:

• Your tax filing status
• Your taxable income
• How long you’ve held owned the asset

Here’s a look at how both short- and long-term capital gains are taxed.

Short-Term Capital Gains Tax Rates in 2025

Long-Term Capital Gains Tax Rates in 2025

In addition to the capital gains tax, high-net-worth individuals or high-earners might end up being on the hook for additional taxes for their investment profits. The net investment income tax (NIIT) can add an additional 3.8% tax on top of your capital gains tax if your modified adjusted gross income (MAGI) is above $200,000 for single filers or $250,000 for married filing jointly.

9 Ways to Avoid Capital Gains Taxes on Stocks

There are numerous strategies that investors can implement to reduce or avoid capital gains tax on stocks sold at a profit. Each has its own unique pros and cons that you should take a look at to see if it’s a good fit for your personal situation before moving forward.

Here are some of the most common methods that you can incorporate into your financial plan:

1. Invest for the Long Term

When you invest for the long term, you benefit from long-term capital gains rates. These tax rates can be substantially lower than ordinary income tax rates. In 2025, if your taxable income is less than $48,350 as a single filer ($96,700 for married, filing jointly), your long-term capital gains tax rate is 0%.

2. Contribute to Your Retirement Accounts

Investing in retirement accounts eliminates capital gains taxes on your portfolio. You can buy and sell stocks, bonds and other assets without triggering capital gains taxes. Withdrawals from Traditional IRA, 401(k) and similar accounts may lead to ordinary income taxes. However, Roth accounts eliminate taxes entirely on eligible withdrawals.

3. Pick Your Cost Basis

When selling your stocks, it is possible to pick your cost basis on the shares that you sell. By handpicking the individual shares, you may be able to avoid capital gains taxes by selling shares that are at a loss (or at least have lower gains), even if your overall position in that investment has made money.

4. Lower Your Tax Bracket

When you have less taxable income, you may qualify for 0% tax rates on long-term capital gains. You can lower your taxable income by being strategic on withdrawals. For example, retirees can make withdrawals from a Roth IRA instead of a 401(k) or traditional IRA, since qualified Roth withdrawals are not taxable in retirement.

Alternatively, you can maximize your deductions by prepaying property tax payments before December 31 or bunching two year’s worth of charitable contributions into one year. Deferring income and maximizing your deductions is another strategy to avoid getting bumped up into a higher tax bracket. Maxing out your company retirement accounts and health savings accounts (HSA) is an excellent way to reduce your taxable income as well.

5. Harvest Losses to Offset Gains

Capital losses on investments can offset realized short-term and long-term capital gains. Some investors harvest losses proactively when investments go down in value to offset potential future capital gains. Investors may also offset $3,000 in ordinary income yearly if they have excess capital losses.

6. Move to a Tax-Friendly State

While the state you live in won’t affect your federal taxes owed, moving to a tax-friendly state may help you avoid capital gains tax on stocks when paying state income taxes. Eight states do not charge capital gains taxes: Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas and Wyoming.

7. Donate Stock to Charity

If you have appreciated stock, consider donating the stock instead of cash to your favorite charity. You won’t owe capital gains taxes on the profits when you transfer those shares directly to the charity. Plus, you’ll get a tax deduction based on the current value of the shares instead of the actual amount that you paid for them. And the charity won’t owe taxes either, making it a win-win for both parties.

8. Invest in an Opportunity Zone

The Tax Cuts and Jobs Act created “opportunity zones” that offer tax advantages to investors. By investing in eligible low-income and distressed communities, you can defer taxes and potentially avoid capital gains tax on stocks altogether. To qualify, you must invest unrealized gains within 180 days of a stock sale into an eligible opportunity fund, then hold the investment for at least 10 years.

9. Pass Down Appreciated Assets

When someone passes away, there is a step-up in the cost basis of their assets. This means that the heirs that receive stocks, bonds, real estate and other assets do not owe capital gains taxes if they sell the assets right away. If the assets continue to appreciate after the investor’s death, the beneficiaries will only owe taxes on the appreciation that occurred after their date of death.

Bottom Line

Capital gains taxes can negatively impact your investment profits, especially if you’ve held the assets for one year or less. Luckily, there are numerous strategies that investors can use to reduce or avoid capital gains tax on stocks, bonds and other assets. Before making any moves, consider talking with a financial planner or tax advisor to discuss your current situation and the strategies that you’re considering.

Tips for Tax Planning

• Investors with a financial advisor can work together to reduce or avoid capital gains tax on stocks and other investments. By using their experience and knowledge, a financial advisor can propose steps to minimize the taxes you’ll owe on your stock sales. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Capital gains taxes reduce the profits that you’ve earned from your investments. You can properly plan out what your potential liability might be by planning ahead for how your investments might grow. Use our investment calculator to know what your potential increase might be.

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