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Selling stocks? 3 ways you might minimize your capital gains taxes

Many investors look to lock in equity gains as they rebalance their portfolios. These tips may help you limit the tax consequences.


AS YOU REVIEW YOUR PORTFOLIO throughout the year, you may consider selling some investments that have increased significantly in value since you bought them. Selling high performers can help you capture long-term gains as you rebalance your portfolio periodically. You may owe capital gains tax on their increased value, says Joe Curtin, head of CIO Portfolio Management, Chief Investment Office, Merrill and Bank of America Private Bank. But rebalancing can help you keep your investments in line with your goals and preferred asset allocation. And remember that capital gains taxes are a result of successful investing, he says.


While few people enjoy paying taxes, a capital gains tax of, say, 20%1 (rates vary depending on your income — and there could be proposals in the future that could raise the capital gains rate) “may be a small price to pay for success,” Curtin notes. “You can celebrate keeping the 80%.” Still, there are several strategies you might consider discussing with your tax professional to help reduce what you may owe in capital gains tax, Curtin suggests. He offers several strategies to consider below.


Offsetting gains with losses

“If a good part of your portfolio is up in value, while a smaller part is down,” Curtin says, “selling some of those ‘down’ investments at a loss — known as tax-loss harvesting — and claiming the loss on your tax return could help offset what you owe from your sale of better-performing stocks.” You can generally deduct up to $3,000 (or $1,500 if married and filing separately) of capital losses in excess of capital gains per year from your ordinary income. And if your net capital losses exceed that yearly limit, you can carry over the unused losses to later years.2


Joseph Curtin headshot
“Selling ‘down’ investments at a loss — known as tax-loss harvesting — and claiming the loss on your tax return could help offset what you owe from your sale of better-performing stocks.”

— Joe Curtin, head of CIO Portfolio Management for the Chief Investment Office for Merrill and Bank of America Private Bank

But maybe you want to keep some promising but currently struggling investments in your portfolio. In that case, you could consider selling them, harvest the loss and then buy them again. Just work with your tax professional so that you’re waiting more than 30 days before repurchasing the same or substantially similar stock — if you buy substantially similar investments 30 days before or after the initial sale, you might trigger “wash sale” rules and may not be able to claim the losses on your tax return in that year.


Taking capital gains in different years 

Another option to discuss with your tax professional may be to “spread the sale over multiple tax years — that can help ease the burden,” says Jonathon McLaughlin, investment strategist for Bank of America.


You might, for example, sell part of an investment that’s performing strongly at the end of 2023, another part during 2024 and the final portion at the beginning of 2025, thereby completing the sale in a little over 12 months while spreading potential capital gains over three tax years, McLaughlin notes.


But don’t forget that waiting to sell involves risks. The advantages of holding on to those assets, McLaughlin notes, may not outweigh the benefits of selling now and reaping the rewards, even if it comes with a greater tax bill now.


Giving more efficiently

One option you may want to discuss with your tax advisor is to give certain appreciated investments away — either to charity or to your beneficiaries as part of your estate — in order to entirely avoid capital gains taxes. If you regularly give to a specific charity, you might consider giving some appreciated stock instead of cash. You may be able to deduct the fair market value (subject to certain AGI limitations) of the appreciated stock if you’ve held the stock for more than one year. The charity may not have to pay capital gains taxes, and you can use the cash you would have donated to purchase new investments. You can also give in this way through a donor-advised fund.


The cost basis, or original price paid (plus or minus certain adjustments for tax purposes), of appreciated investments passed to your beneficiaries through your estate is generally stepped up to fair market value at your death. However, if you give investments to your beneficiaries during your lifetime, the assets maintain a “carryover basis,” or the same basis you held in the stock.


Any actions you may take should be based on your specific situation and needs rather than your desire to sidestep taxes, Curtin notes. So be sure to speak with your tax specialist and financial advisor before making any decisions.


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1 Plus a potential 3.8% net investment income tax.

2 Internal Revenue Service, “Topic No. 409 Capital Gains and Losses,” April 4, 2023.


Important Disclosures


Opinions are as of July 17, 2023, and are subject to change.


Investing involves risk including possible loss of principal. Past performance is no guarantee of future results.


Merrill, its affiliates, and financial advisors do not provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.


This information should not be construed as investment advice and is subject to change. It is provided for informational purposes only and is not intended to be either a specific offer by Bank of America, Merrill or any affiliate to sell or provide, or a specific invitation for a consumer to apply for, any particular retail financial product or service that may be available.


The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., (“Bank of America”) and Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S” or “Merrill”), a registered broker-dealer, registered investment adviser, Member SIPC and a wholly owned subsidiary of Bank of America Corporation (“BofA Corp.”).


Investments have varying degrees of risk. Some of the risks involved with equity securities include the possibility that the value of the stocks may fluctuate in response to events specific to the companies or markets, as well as economic, political or social events in the U.S. or abroad. Investments in foreign securities (including ADRs) involve special risks, including foreign currency risk and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are magnified for investments made in emerging markets. Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration.


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