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September 2025 Client Profile

Christine is a small business owner who sells handmade furniture. In 2024, her business has had a successful year, and she is considering selling a piece of property she owns. The property was originally purchased for $150,000 five years ago, and its current market value is $250,000. Christine expects to make a $100,000 profit on the sale.

Since the property was held for more than a year, the profit is considered a long-term capital gain, which is typically taxed at a lower rate than ordinary income. Christine’s federal long-term capital gains tax rate could range from 0% to 20%, depending on her overall taxable income for the year.

However, Christine also has some concerns about the depreciation she claimed on the property in previous years. Depreciation can result in depreciation recapture, which is taxed as ordinary income, potentially at a higher rate.

By consulting her tax advisor, Christine can determine the best course of action to minimize her tax burden with strategies like offsetting the gain with other losses or planning for any depreciation recapture, ensuring she doesn’t pay more than necessary in taxes.

Client Profile is based on a hypothetical situation. The solutions discussed may or may not be appropriate for you.

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Tax-Efficient Strategies

Capital gains taxes can significantly impact the returns on your investments. By working with a tax professional they’ll help you understand the difference between short-term and long-term capital gains tax rates, ensuring that you are minimizing your tax liability.

Utilize tax-efficient strategies, such as tax-loss harvesting, where you offset gains by selling other investments at a loss. This approach can help reduce your overall taxable income for the year.

For business owners, capital gains may arise from the sale of a business or property. A tax professional can help structure the sale in a tax-advantaged way, taking into account depreciation recapture and other complex issues that could affect the final tax outcome.

Consulting a tax advisor ensures that you’re making informed decisions as they are up to date on new tax laws.

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Understanding Capital Gains and Losses

How you manage the sale of your investments impacts your overall tax picture. And to get the most out of the current tax law, you’ll need to understand capital gains and losses.

WHAT’S A CAPITAL ASSET?

Capital gains or losses are generated when you sell capital assets, which are generally any property you own. Your house, car, stocks, bonds, jewelry and collectibles are all capital assets.

SHORT OR LONG-TERM?

There are two classifications of gains and losses, based on how long you owned the asset. Short term means you held the investment for one year or less, and long term applies to anything you owned for more than a year.

WHAT’S THE AMOUNT?

Generally, the amount of your gain or loss is the difference between how much you paid to purchase the asset and the mount you sold it for. Your basis in the asset also includes your costs to acquire it like sales tax, shipping and installation or set up fees. There are special rules for assetts acquired by inheritance. You’ll want to consult your tax professional if this applies to you.

WHAT’S THE TAX?

The tax rate you’ll pay depends on whether your gain is short or long term. Tax rates for short term gains are the same as what you owe on your ordinary income. Long term gains have lower preferential tax rates.

WHAT’S A LOSS?

If you sell a capital asset for less than your basis, which is your total investment in it, you’ll have a capital loss. You can generally offset these losses against gains of the same type (e.g., short term losses can offset short term gains). But only losses on the sale of financial investments are tax deductible.

Selling your home, car or other personal-use property for a loss won’t trigger a tax deduction. And if your losses exceed your gains, you can offset up to $3,000 against other types of income (e.g., W-2 wages) each year and carry forward the rest to future years.

BEWARE

With the wash sale rules, if you sell a security and buy it, or a substantially similar one, within 30 days, any loss you incurred isn’t tax-deductible.

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Warding Off Capital Gains Tax Fears

Everyone wants to minimize taxes owed, but the suitability of an investment for you is more important than whether you may, at some time, owe capital gains tax on it. The point is to handle capital gains and not avoid attractive investments that may generate the tax.

KNOW THE FACTS

Long-term capital gains apply to the appreciation of assets you sell after owning them for more than a year. Gains on assets sold within a year of purchase are taxed as ordinary income.

Long-term federal capital gains taxes are 15% to 20% and may be as low as 0% for lower income taxpayers, potentially making capital gains less costly than regular income tax. Remember to budget for the tax you’ll owe on gains.

HARVEST LOSSES

Sell losing investments and replace them with assets that offer more promise. Then offset realized capital gains with those losses. But be aware that you’II lose your tax advantage if you repurchase identical securities within 30 days of selling them.

Remember, all of your investments should help move you closer toward your finanical goals, even if it means paying capital gains taxes.