Exemption from capital gains tax can be achieved by utilizing the primary residence exclusion ($250k single/$500k married), holding investments in tax-advantaged accounts (401(k), IRA), or offsetting gains with losses. Other methods include gifting assets, investing in Qualified Opportunity Zones, or donating appreciated assets to charity.
A capital gains rate of 0% applies if your taxable income is less than or equal to: $48,350 for single and married filing separately; $96,700 for married filing jointly and qualifying surviving spouse; and. $64,750 for head of household.
A common way to defer or reduce your capital gains taxes is to use tax-advantaged accounts. Retirement accounts such as 401(k) plans, and individual retirement accounts offer tax-deferred investment. You don't pay income or capital gains taxes on assets while they remain in the account.
The simplest way to avoid capital gains tax is to regularly use your capital gains tax allowance (officially known as your annual exempt amount or AEA). How easy this is to do depends on the assets you are selling.
Lifetime capital gains exemption eligibility
On a $100,000 capital gain, you'll likely pay 15% for long-term gains, resulting in about $15,000 in federal tax (plus potential state tax), but it could be 0% or 20% depending on your total taxable income and filing status, while short-term gains are taxed as ordinary income (potentially 22-24%).
The primary "one-time" capital gains exemption in the U.S. allows single filers to exclude up to $250,000 (or $500,000 for married couples filing jointly) of profit from selling their main home, provided they've owned and lived in it for at least two of the last five years before the sale. While it's often called a one-time exclusion, you can use it multiple times, but you must wait two years before claiming it again on another property.
How Wealthy Households Use a “Buy, Borrow, Die” Strategy to Avoid Taxes on Their Growing Fortunes
The "6-year rule" for Capital Gains Tax (CGT) in Australia allows you to treat a former main residence as tax-exempt for up to six years after you move out, even if you rent it out, enabling you to avoid CGT on any growth during that period. You qualify by moving out, choosing to treat it as your main home for tax, and can reset the rule by moving back in. If you rent it out for longer than six years, only the portion of the gain after the six-year mark becomes taxable.
Second, capital gains taxes on accrued capital gains are forgiven if the asset holder dies—the so-called “Angel of Death” loophole. The basis of an asset left to an heir is “stepped up” to the asset's current value.
To qualify for 0% capital gains tax, you must have long-term capital gains (assets held over a year) and your taxable income (after deductions) must fall below specific IRS thresholds, which change annually but are roughly <$48,350 for single filers and <$96,700 for married filing jointly for the 2025 tax year, allowing for higher total income when combined with deductions like the standard deduction. The key is keeping your adjusted gross income (AGI) low enough so that after subtracting deductions, your taxable income remains within these limits.
The 20% rule for capital gains refers to the highest federal tax rate for long-term capital gains, applying to higher income brackets when you sell investments (stocks, real estate) held for over a year, with lower rates of 0% and 15% for lower incomes, and even higher rates for special assets like collectibles. This rate kicks in for single filers earning over approximately $492,300 (2024) or $533,401 (2025), and higher for joint filers, making holding assets over a year a key tax strategy.
How can I reduce capital gains taxes?
The amount of tax-free capital gain depends on the asset, but the most common exemption is for your primary home, allowing single filers to exclude up to $250,000 (or $500,000 for married couples) of profit if you've lived there 2 of the last 5 years. Additionally, certain long-term investments in qualified small businesses or Opportunity Funds, plus gains on inherited assets (due to stepped-up basis at death), can also be tax-free, while lower income levels may qualify for a 0% long-term capital gains tax rate.
stocks and shares you hold in tax-free investment savings accounts, such as ISAs and PEPs. UK Government or 'gilt-edged' securities, for example, National Savings Certificates, Premium Bonds and loan stock issued by the Treasury. betting, lottery or pools winnings. personal injury compensation.
There are many options for transferring wealth to the next generation beyond cash gifts; 2503(c) trusts, trusts with Crummey withdrawal rights, UGMA/UTMA accounts, and 529 plans are some of the most common and tax-efficient strategies available.
Capital improvements: Improvements that add value to your home or prolong its useful life can reduce the amount of capital gains tax you owe when you sell your home, but won't be immediately deductible.
Borrowing Against Assets Instead of Selling Them
Instead of selling stock and triggering capital gains taxes, billionaires like Bezos often borrow money against their assets. This allows them to access cash without paying taxes on stock sales. Think of it like this: Bezos owns billions in Amazon stock.
On a $100,000 capital gain, you'll likely pay 15% for long-term gains, resulting in about $15,000 in federal tax (plus potential state tax), but it could be 0% or 20% depending on your total taxable income and filing status, while short-term gains are taxed as ordinary income (potentially 22-24%).
You can do this if you meet all three conditions: You owned the home for a total of at least two years. You used the home as your primary residence for a total of at least two years in the last five-years before the sale. You haven't excluded the gain from another home sale in the two-year period before the sale.
Offset any losses you've made on other assets against your gain. So, if you have a share portfolio or family heirloom that sold at a loss, for example, you can use that to reduce the taxable gain against another asset you're selling, such as property.
If you sell your house and don't buy another, you'll have cash proceeds (after paying off the mortgage and selling costs) and need to decide on new housing, often renting or moving in with family; financially, you might benefit from the IRS capital gains exclusion (up to $250k/$500k profit if you've lived there two of the last five years), but you'll pay tax on gains beyond that, while also managing the new costs of renting or storage.
The "6-year rule" for Capital Gains Tax (CGT) in Australia allows you to treat a former main residence as tax-exempt for up to six years after you move out, even if you rent it out, enabling you to avoid CGT on any growth during that period. You qualify by moving out, choosing to treat it as your main home for tax, and can reset the rule by moving back in. If you rent it out for longer than six years, only the portion of the gain after the six-year mark becomes taxable.