5 Ways to Reduce Capital Gains Taxes after a Home Sale
A woman who just sold her home in Eagle called us with a good problem. Years of Treasure Valley appreciation had left her with roughly $2 million in capital gains, well above the federal home-sale exclusion. Her two questions: how bad will the tax bill be in April, and is there anything she can still do about it?
This is a question we’re getting more frequently. Home values in Eagle, Boise, and the rest of Ada County have climbed enough that sellers who've owned their homes for decades are blowing past the $250,000/$500,000 federal exclusion, often without realizing it until their CPA runs the numbers.
This is where I believe power of integrating wealth management and tax planning comes alive.
Here are 5 ideas for how one can reduce their tax bill, after the sale of a primary residence.
Before diving in, two things to keep in mind:
Tax planning is about the time value of money.
Each dollar you keep in your pocket can be invested and grow. On the other side, any money paid in taxes to the IRS cannot grow. So, even if all a tax strategy does is defer the eventual tax bill, it’s still a win.
Don't let the tax tail wag the investment dog.
Even though all of these concepts are worth exploring, a bad investment with a good tax structure is still a bad investment. We once took on a client who'd made a private investment (before working with us) and lost over $1 million. The promoter's response was, essentially, "at least you can write off the loss."
Against that backdrop, here are the 5 ideas worth discussing with your wealth and tax advisors:
Tax Loss Harvesting
Donor Advised Funds
Charitable Remainder Annuity Trusts
Opportunity Zone Investing
Oil & Gas Investments
While each of these is covered in our e-book on the 50 Legal Ways to Reduce Your Lifetime Tax Bill (click here to download it for free), here is a quick overview of each strategy.
Strategy #1: Tax-Loss Harvesting
Tax-loss harvesting involves selling a security that has declined in value to realize a capital loss. This loss can then be used to offset capital gains you’ve realized elsewhere, whether they be realized gains in your portfolio or capital gains from the sale of your primary residence. In 2022 you may recall that we had the tail end of a very robust housing market coupled with a bad year for stocks and bonds. That year we were able to help several clients offset the capital gains tax bill from the sale of their houses by aggressively tax loss harvesting their portfolios.
To reap these tax benefits, you must navigate the IRS’s Wash-Sale Rule. This rule prohibits you from claiming a loss if you buy the same or a "substantially identical" security within 30 days before or after the sale. To maintain your market exposure, many investors sell a losing stock and immediately buy a similar (but not identical) ETF or index fund to stay invested while waiting for the 30-day window to close.
By proactively harvesting losses throughout the year, you ensure that the IRS doesn't take a larger share of your portfolio than necessary, effectively letting your "losers" pay for your future "winners."
Strategy #2: Donor-Advised Funds
For high net worth families that want to reduce their tax bill, are charitably inclined, and don’t want to deal with the hassle and administrative cost of a private foundation, a DAF can be a triple-crown like strategy.
The most significant benefit of a DAF is the ability to "bunch" several years’ worth of charitable contributions into a single tax year. If your total itemized deductions are normally just below the standard deduction threshold, you can contribute three to five years of intended giving into a DAF all at once. This pushes you well above the threshold for 2026, creating a substantial deduction today, while allowing you to distribute those funds to your favorite charities gradually over the coming years.
One of the smartest ways to fund a DAF is by donating long-term appreciated securities (like stocks or ETFs) rather than cash. This provides a double tax win:
Avoid Capital Gains: You pay $0 in capital gains tax on the appreciation of the asset.
Full Market Value Deduction: You receive a tax deduction for the fair market value of the stock on the day of the donation, not just what you originally paid for it.
The IRS grants you the tax deduction the moment the assets hit the DAF. However, you don't have to choose which charities to support right away. This "contribution now, distribution later" model is perfect for investors who have a high-income year in 2026, perhaps due to a business sale or the sale of your primary residence, but want to take their time vetting non-profits or involving their family in the giving process.
Real Life Example
A few years ago we had a client sell their business building and realize a 7 figure capital gain. Knowing this client was charitably inclined, we had him transfer over $1M of appreciated stock to his DAF. He then used cash from the sale of the business to repurchase many of those same securities. The tax benefit was immediate, the DAF has supported his charitable giving ever since, and the securities have grown in value.
Strategy #3: Charitable Remainder Trusts (CRTs)
When contemplating the sale of an asset that will trigger a large capital gain, Advisors will often recommend transferring the asset first into a CRT and then letting the CRT sell the asset. However, in this instance, the woman who called had already sold the asset. Which means a CRT could work but only if the person also had other significant assets with unrealized gains and they were charitably inclined.
A CRT is a "split-interest" tax-exempt entity. You transfer appreciated assets into the trust, which then sells them. Because the trust is tax-exempt, it pays zero capital gains tax on the sale. The full proceeds are then reinvested to pay you (or your chosen beneficiaries) an income for life or a set term of years. Once the term ends, the remaining balance goes to your designated charity.
Summed up, the tax benefits are:
Immediate Income Tax Deduction: When you fund the trust, you receive an immediate charitable income tax deduction. The deduction is based on the present value of the "remainder interest" that will eventually go to charity. If you cannot use the entire deduction in year one, it can typically be carried forward for up to five additional years. This is where coupling the existing home sale with the CRT strategy can work together to reduce next year’s tax bill.
Capital Gains Deferral: By avoiding the immediate 20% federal capital gains tax (plus any state taxes and the 3.8% net investment income tax), you keep 100% of the sale proceeds working for you. This "pre-tax" compounding can significantly increase the total income you receive over your lifetime compared to selling the asset personally.
Estate Tax Reduction: Assets moved into a CRT are generally removed from your taxable estate. For high-net-worth individuals, this reduces future estate tax liability, ensuring more of your legacy is directed toward your philanthropic goals rather than the IRS.
A CRT works here if the sale of the home (coupled with her other assets) puts her in a financial position to do some sophisticated tax planning and get a large tax deduction this year, while also setting her up to receive a stream of income from her new CRT and setting aside significant funds for her favorite charities.
Strategy #4: Qualified Opportunity Zones (QOZs)
Qualified Opportunity Zones (QOZs) remain one of the most sophisticated ways to grow wealth while supporting economically distressed communities. Established by the 2017 Tax Cuts and Jobs Act, this program offers a unique triple-threat of tax advantages for those with capital gains. And unlike CRTs or 1031 exchanges, Opportunity Zones were designed for the investor who realizes a large capital gain and then decides to figure out ways to reduce their tax bill.
When you sell an asset, whether it’s stock, real estate, or a business, you are typically hit with an immediate capital gains tax. By reinvesting those gains into a Qualified Opportunity Fund (QOF) within 180 days, you can defer paying taxes on that initial gain.
The most compelling reason to invest in a Qualified Opportunity Fund remains the ten-year exclusion of appreciation, now a permanent feature of the tax code under the One Big Beautiful Bill Act. Timing, however, drives the outcome.
A 2026 investor falls under the original rules. The deferred gain must be recognized in the tax year that includes December 31, 2026, whether or not the fund interest is sold, and the five- and seven-year basis step-ups are gone. What remains is the ten-year exclusion: appreciation on the fund interest escapes federal capital gains tax if the interest is held ten years and disposed of by December 31, 2047.
A 2027 investor falls under OZ 2.0: a rolling five-year deferral measured from the investment date, a 10% basis step-up at year five (30% for qualified rural funds), and the same ten-year exclusion — except fair market value freezes at the thirtieth anniversary, so appreciation after that point is taxable.
In both cases the exclusion covers appreciation only — not the deferred gain, not the fund's annual operating income, and not state tax in every state.
For our particular situation, this client wouldn’t recognize much of a tax benefit by investing some of her proceeds into a QOZ this year. However should this same set of facts play out after the New Year, QOZs will be a significant part of the tax planning conversation.
Strategy #5: Oil & Gas Working Interests
For high-income earners, few investments offer the same level of immediate tax relief as a direct participation program in domestic oil and gas. While traditional energy stocks provide dividends, owning a Working Interest (WI) in a partnership unlocks unique provisions within the U.S. tax code specifically designed to incentivize domestic energy production.
The most significant benefit of a Working Interest is its exemption from Passive Activity Loss (PAL) rules. Under IRC Section 469(c)(3), a working interest in an oil and gas property is not considered a passive activity. This means that unlike real estate or limited partnerships, where losses can only offset other passive gains, the deductions from a WI can be used to directly offset active income like W-2 wages, business profits, and bonuses.
Under the One Big Beautiful Bill Act, the first-year tax benefits are at an all-time high:
Intangible Drilling Costs (IDCs): Expenses such as labor, fuel, and site preparation, which typically make up 60%–85% of total well costs, are 100% deductible in the year they are incurred.
Tangible Drilling Costs (TDCs): The OBBBA restored 100% bonus depreciation for the physical equipment (casing, pumps, and tanks). This allows investors to write off the remaining portion of their investment immediately, often resulting in a 100% deduction of the total investment in Year 1.[i]
Once the well begins producing, the benefits continue through the Statutory Depletion Allowance. Independent producers can typically treat 15% of the gross income from the well as tax-free. This allowance is unique because it is not limited to the original cost of the investment; it can continue as long as the well produces, providing a long-term "tax discount" on your cash flow.
A Word on Risk: A Working Interest carries more than just tax perks - it involves sharing in the costs and operational liabilities of the well. However, for those in the top tax bracket, the government effectively subsidizes a significant portion of the risk through these aggressive deductions, making it a cornerstone for sophisticated tax planning.
In Closing
Ben Franklin famously said that a dollar saved is a dollar earned. Tax planning is all about capitalizing on these words. Sometimes the best answer is to pay the taxes and move on, while other times, its worth implementing 1, 2, or even 3 of these strategies before writing a 6 figure check to the government.
Our job as Wealth Advisors is to work with our clients and their Tax Advisors and determine what makes the most sense. And then once that is determined, help implement the solutions agreed upon.
If you have a similar capital gains situation and want to explore your options, send me an email at Rob@swrpteam.com
[1] Oil & Gas Working Interests Write-Offs.
– Emphasizes 100% deductions in the first year.
– Provides minimal detail on high risks: dry holes, total capital loss, illiquidity, and market volatility.
This material is purely intended to be general and educational in nature, and should not be construed as specifically-tailored investment, financial planning, tax, legal, or other professional advice. Information and data contained herein is as-of the date of publication, and may be subject to change in the future without notice. Any investment performance referenced is purely past performance, which is no guarantee of any future performance. Nothing contained herein should be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation of any security or other financial product or investment strategy. All investment, tax, and financial planning strategies involve risk that you should be prepared to bear. You are highly encouraged to consult with professionals of your choosing before taking any action based on this material.