Disclaimer: This article is for educational purposes only and does not constitute official legal or financial advice. Capital gains tax laws are complex and subject to change. Individuals should consult with a licensed estate planning attorney and tax professional to determine the best strategies for their unique financial situation.
Capital gains tax is a crucial consideration for business owners, investors, and individuals engaged in buying and selling assets. Whether you own stocks, real estate, or a business, understanding how capital gains taxes work can help you make informed financial decisions, minimize tax liabilities, and develop strategies for wealth preservation.
At Peabody Law Firm, we provide expert legal guidance for individuals and businesses in Southlake, Westlake, Trophy Club, Colleyville, Keller, and surrounding communities. Understanding capital gains taxation is essential for effective estate planning, business sales, and investment management.
What Are Capital Gains?
A capital gain occurs when you sell an asset for more than its original purchase price. The capital gains tax is a tax applied to the profit you earn from selling investments, real estate, or other appreciating assets.
- Short-Term Capital Gains – Profits from assets held for one year or less are taxed as ordinary income, often at a higher rate than long-term capital gains.
- Long-Term Capital Gains – Profits from assets held for more than one year qualify for lower tax rates, ranging from 0% to 20%, depending on your taxable income.
Capital Gains Tax Rates in 2025
As of 2025, the long-term capital gains tax rates are:
| Taxable Income (Single) | Taxable Income (Married, Filing Jointly) | Capital Gains Tax Rate |
|---|---|---|
| Up to $44,625 | Up to $89,250 | 0% |
| $44,626 – $492,300 | $89,251 – $553,850 | 15% |
| Over $492,300 | Over $553,850 | 20% |
(Source: IRS.gov)
For short-term capital gains, profits are taxed at your ordinary income tax rate, which can be as high as 37% for high earners.
How Capital Gains Apply to Real Estate
Real estate transactions are among the most common areas where individuals encounter capital gains tax.
Homeowners and real estate investors should be aware of special tax rules:
- Primary Residence Exclusion: If you sell your primary home, you may qualify for a $250,000 (single) or $500,000 (married) capital gains exclusion—provided you lived in the home for at least two of the last five years before selling.
- Real Estate Investment Properties: Unlike primary residences, rental or investment properties do not qualify for the capital gains exclusion. However, 1031 exchanges allow investors to defer capital gains taxes by reinvesting proceeds into another property.
- Depreciation Recapture: If you’ve claimed depreciation on an investment property, part of your gains may be taxed at higher rates when you sell.
Capital Gains on Business Sales
Selling a business involves capital gains taxation, particularly when selling stock, equipment, or goodwill. Business owners should carefully structure their sale to minimize tax liabilities.
- Asset Sales vs. Stock Sales:
- Asset Sales: Individual business assets (such as equipment, real estate, and goodwill) may be subject to capital gains tax or ordinary income tax, depending on the asset type.
- Stock Sales: If you sell shares of your business, gains are typically taxed at long-term capital gains rates (if held for over a year).
- Installment Sales: Structuring a business sale as an installment sale allows you to spread capital gains tax over multiple years, reducing your overall tax burden.
- Qualified Small Business Stock (QSBS) Exclusion: Certain small business stock sales may qualify for a 100% capital gains tax exclusion under Section 1202 of the IRS Code if held for at least five years.
Tax Strategies to Reduce Capital Gains Liability
1. Hold Assets for More Than One Year
The easiest way to minimize capital gains tax is to hold investments for over a year to qualify for lower long-term capital gains rates.
2. Utilize Tax-Loss Harvesting
Offset gains by selling underperforming investments to claim capital losses, which can be used to reduce taxable gains.
3. Leverage the 1031 Exchange for Real Estate
If you’re selling investment real estate, a 1031 exchange allows you to defer capital gains taxes by reinvesting in a like-kind property.
4. Charitable Contributions
Donating appreciated assets to a charitable organization allows you to avoid capital gains tax while also receiving a charitable deduction.
5. Use Trusts for Wealth Transfer
Establishing a charitable remainder trust (CRT) or irrevocable trust can help reduce capital gains tax exposure while preserving assets for future generations.
6. Consider Gifting Strategies
Instead of selling an asset, gifting appreciated stock or property to family members in lower tax brackets can minimize capital gains tax.
Common Capital Gains Tax Mistakes to Avoid
1. Selling Without Considering Tax Consequences
Selling a high-value asset without tax planning can result in unexpected tax liabilities. Consulting an estate planning attorney before selling can help you implement tax-efficient strategies.
2. Not Using Available Exemptions
Many investors miss out on capital gains exclusions (such as the primary residence exclusion) or 1031 exchanges that could save them thousands in taxes.
3. Failing to Plan for Business Sales
Business owners should work with tax advisors and legal professionals well in advance of a sale to ensure tax-efficient structuring.
4. Ignoring Estate Planning Considerations
High-net-worth individuals should integrate capital gains strategies into their estate plans to protect wealth and reduce tax exposure for heirs.
How Peabody Law Firm Can Help
At Peabody Law Firm, we provide expert legal counsel for business owners, real estate investors, and high-net-worth individuals seeking to minimize capital gains tax exposure. We serve clients in Southlake, Westlake, Trophy Club, Colleyville, Keller, and surrounding communities.
Our capital gains tax services include:
✔ Tax-Efficient Wealth Transfer Strategies
✔ Real Estate Capital Gains Planning & 1031 Exchanges
✔ Business Sale & Exit Strategies
✔ Trust & Estate Planning for High-Value Assets
✔ Investment Portfolio Tax Planning
With the right legal and tax planning strategies, you can minimize capital gains tax liabilities and preserve more of your wealth for future generations.
Contact Peabody Law Firm today to schedule a consultation and discuss tax-efficient strategies tailored to your financial goals.