If you’ve sold or are planning to sell an appreciated asset that isn’t real estate held for investment or business use, a Section 1031 like-kind exchange is off the table. The 2017 Tax Cuts and Jobs Act restricted 1031 treatment to real property, so stock, private business interests, collectibles, and cryptocurrency no longer qualify.1Internal Revenue Service. Like-Kind Exchanges – Real Estate Tax Tips To defer capital gains tax without a 1031 exchange, the main options are reinvesting in a Qualified Opportunity Fund, structuring the sale as an installment sale, using the primary residence exclusion, holding qualified small business stock long enough to exclude the gain, contributing the asset to a charitable remainder trust, or offsetting the gain with harvested losses. Which one fits depends on the asset, the size of the gain, and whether you want to postpone the tax, shrink it, or eliminate it.
Reinvest the Gain in a Qualified Opportunity Fund
A Qualified Opportunity Fund (QOF) accepts capital gains from almost any source — stock, real estate, a private business, artwork, or cryptocurrency — and defers the tax on them. You have 180 days from the date you recognize the gain to invest it in the fund, and only the gain itself needs to go in, not the full sale proceeds.2Internal Revenue Service. Invest in a Qualified Opportunity Fund If the gain flows through a partnership or S-corporation, the 180-day clock can start on the entity’s return due date (including extensions) instead of the sale date.
What Happens at the End of 2026
The deferred gain comes back into income on the earlier of the date you sell your QOF interest or December 31, 2026.3Internal Revenue Service. Opportunity Zones Frequently Asked Questions If you’re still holding the investment at year-end 2026, you’ll owe tax even though no cash has changed hands. The gain keeps its original character, so a long-term capital gain stays long-term. The 10 percent and 15 percent basis reductions that earlier investors received for five- and seven-year holds are no longer available; those windows closed in 2019 and 2021.
One cushion: if the QOF investment has lost value, you only recognize the lesser of the original deferred gain or the fair market value on December 31, 2026. A credible appraisal supports the reduced figure.
The Ten-Year Payoff
Hold the QOF investment for at least ten years, and you can elect to step up its basis to fair market value on sale. That eliminates federal tax on any appreciation that occurred inside the fund.2Internal Revenue Service. Invest in a Qualified Opportunity Fund The exclusion applies only to the growth earned inside the QOF, not to the original deferred gain, which you’ll already have recognized by 2026. You elect the deferral on Form 8949 and track it annually on Form 8997.4Internal Revenue Service. Form 8997 – Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments Some states do not follow the federal QOF rules, so check how your state treats the deferral.
Spread the Gain Through an Installment Sale
An installment sale is deferral in its simplest form. Instead of taking the full purchase price at closing, you accept payments across multiple tax years and report the taxable portion of each principal payment as you receive it.5Internal Revenue Service. Topic No. 705, Installment Sales It works for real property, business assets, and other non-inventory property. Publicly traded securities and dealer inventory don’t qualify.
The reporting runs on a gross profit ratio. Divide total profit by the contract price, apply that percentage to each principal payment, and that’s the taxable gain for the year. Sell a property for $1,000,000 with $400,000 of profit, and a $50,000 principal payment produces $20,000 of reportable gain. Interest on the note is taxed separately as ordinary income. Everything goes on Form 6252 each year the note is outstanding.6Internal Revenue Service. About Form 6252, Installment Sale Income
Depreciation Recapture Doesn’t Wait
If you’ve been depreciating the property, the recapture portion of your gain is ordinary income in the year of sale, no matter when the cash arrives.5Internal Revenue Service. Topic No. 705, Installment Sales Only the remaining gain gets spread. Heavily depreciated commercial property can produce a sizable year-one tax bill even when the structure is an installment.
The $5 Million Interest Charge
When your outstanding installment obligations exceed $5 million at year-end, the IRS imposes interest on the deferred tax liability for the portion above that threshold, calculated at the federal underpayment rate.7Office of the Law Revision Counsel. 26 USC 453A – Special Rules for Nondealers For individuals, that interest is nondeductible personal interest, so it’s a true cost rather than a financing wash.
Opting Out, and What Happens If You Die Holding the Note
Installment reporting kicks in automatically if any payment arrives after the year of sale, but you can elect out and report the whole gain upfront, which is useful when you have offsetting losses the same year. The election is made on the return for the year of sale, and reversing it later requires IRS consent.8Office of the Law Revision Counsel. 26 USC 453 – Installment Method
If you die while holding an installment note, your heirs don’t get a stepped-up basis on the deferred portion. The remaining payments are income in respect of a decedent, and the inheritor reports the same taxable share on each payment that you would have.9eCFR. 26 CFR 1.691(a)-5 – Installment Obligations Acquired From Decedent That’s a real disadvantage compared with holding an appreciated asset until death, which would normally give heirs a full basis step-up.
Use the Primary Residence Exclusion
If the appreciated asset is your home, Section 121 is the most generous provision in the code. Sell your primary residence and you can exclude up to $250,000 of gain, or $500,000 if you’re married filing jointly, from federal income tax permanently.10Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence This isn’t deferral; the gain is gone.
You qualify by owning and using the home as your main residence for at least two of the five years before the sale. For joint filers, both spouses must meet the use test, but only one must meet the ownership test. The exclusion is available once every two years, and the two years of residence don’t need to be consecutive.11Internal Revenue Service. Publication 523, Selling Your Home Gain above the limit is taxed at capital gains rates, and nothing prevents you from pairing the exclusion with another strategy for the excess — for instance, rolling the overflow into a QOF.
Hold Qualified Small Business Stock
For founders, early employees, and angel investors, stock in a qualifying small C-corporation carries one of the most valuable breaks in the code. Section 1202 allows a permanent exclusion of gain on sale when the stock meets the requirements and you hold it long enough.
The Section 1202 Exclusion
For stock acquired after September 27, 2010, 100 percent of the qualifying gain is excluded. The One Big Beautiful Bill Act, signed in July 2025, raised the per-issuer cap to $15 million (or ten times your adjusted basis in the stock, whichever is greater) and lifted the issuer’s maximum gross asset threshold to $75 million. Both figures start adjusting for inflation in 2027.12Tax Foundation. Qualified Small Business Stock (QSBS) Exclusion
To qualify, the stock must be issued by a domestic C-corporation with gross assets of $75 million or less at the time of issuance. You have to acquire it directly from the corporation in exchange for cash, property, or services; secondary-market shares don’t count. The corporation must be actively conducting a qualified trade or business, which rules out certain industries including finance, hospitality, and professional services. And you must hold the stock for more than five years. Gain above the $15 million cap is taxed at standard capital gains rates. You report the exclusion on Form 8949 and Schedule D.
Section 1045: Rolling Over Before Five Years
Selling before you hit the five-year mark doesn’t have to blow up the exclusion. Section 1045 allows you to defer the gain by rolling the proceeds into new qualifying small business stock within 60 days, as long as you held the original stock more than six months.13Office of the Law Revision Counsel. 26 USC 1045 – Rollover of Gain From Qualified Small Business Stock The replacement stock must itself meet the Section 1202 definition. The deferred gain reduces the basis of the new shares, so the tax follows the money. Hold the replacement stock the full five years, and the gain can be excluded entirely.
Section 1244: When the Stock Goes Bad
If the small business stock becomes worthless or sells at a loss, Section 1244 lets you treat up to $50,000 of the loss as ordinary ($100,000 for joint filers) rather than capital.14GovInfo. 26 USC 1244 – Losses on Small Business Stock Ordinary losses can offset any type of income and aren’t subject to the $3,000 annual cap on capital loss deductions. The corporation must have received no more than $1,000,000 in total paid-in capital for the stock to qualify. Any loss above the Section 1244 ceiling falls back to capital loss treatment.
Contribute the Asset to a Charitable Remainder Trust
A Charitable Remainder Trust (CRT) converts a highly appreciated asset into an income stream and sidesteps the immediate tax. You irrevocably transfer the asset into the trust; because the trust is tax-exempt, it can sell the asset at full market value with no capital gains tax, and the full amount gets reinvested to fund your payments. You also receive a partial income tax deduction based on the present value of the charitable remainder interest, which must equal at least 10 percent of the initial fair market value.15Internal Revenue Service. Charitable Remainder Trusts
The trust pays you or another named beneficiary for up to 20 years or for life. A Charitable Remainder Annuity Trust pays a fixed dollar amount set at creation; a Charitable Remainder Unitrust pays a fixed percentage of the trust’s annually revalued assets. Either way, the payout rate must fall between 5 and 50 percent of the trust’s value.
Payments aren’t tax-free. Distributions follow a four-tier ordering rule that pushes the most heavily taxed income out first: ordinary income, then capital gains, then other income (including tax-exempt), then tax-free return of corpus.16eCFR. 26 CFR 1.664-1 – Charitable Remainder Trusts If the trust sold a large appreciated asset, your payments will carry capital gains character for years. The result is spreading and recharacterizing the tax, not escaping it. The asset is also gone: the remainder passes to the named charity when the trust ends. The structure fits someone with a large unrealized gain, a need for steady income, and genuine charitable intent.
Harvest Losses, or Harvest Gains at Zero Percent
Tax-loss harvesting cancels gain rather than deferring it. Selling investments that have dropped generates realized losses that offset realized gains dollar for dollar. Net losses beyond gains deduct up to $3,000 against ordinary income ($1,500 if married filing separately), and anything left carries forward indefinitely.17Internal Revenue Service. Topic No. 409, Capital Gains and Losses
Watch the wash sale rule. Buying a substantially identical security within 30 days before or after selling at a loss disallows that loss.18Internal Revenue Service. IRS Courseware – Capital Gain or Loss Workout The disallowed amount shifts into the basis of the replacement shares, so it’s postponed rather than erased. The rule reaches across all your accounts, including IRAs and your spouse’s accounts, and brokers only track wash sales within a single account and security identifier. If you hold similar positions at multiple firms, the tracking is on you.
The reverse strategy, tax-gain harvesting, works when your income lands in the 0 percent long-term capital gains bracket. For 2026, that’s taxable income up to $49,450 for single filers, $98,900 for married filing jointly, or $66,200 for heads of household.19Tax Foundation. 2026 Tax Brackets and Federal Income Tax Rates In a low-income year — retirement, a gap between jobs, a year with large deductions — selling appreciated assets at that bracket produces no federal capital gains tax and resets your basis upward. The wash sale rule doesn’t apply to gains, so you can repurchase immediately.
Don’t Forget the 3.8% Surtax
Every deferral eventually ends in a recognition event, and when it does, the 3.8 percent Net Investment Income Tax may apply on top of the regular capital gains rate. The surtax hits the lesser of your net investment income or the amount by which your modified adjusted gross income exceeds $200,000 (single), $250,000 (married filing jointly), or $125,000 (married filing separately).20Internal Revenue Service. Topic No. 559, Net Investment Income Tax These thresholds don’t adjust for inflation.
Planning matters here. A $600,000 gain recognized all at once almost certainly triggers the surtax; the same gain spread across six installment years may keep you under the line each year. The QOF 2026 recognition event is awkward for the opposite reason: the deferred gain lands in a single tax year by default. Trusts face the surtax at far lower thresholds — around $16,000 in 2026 — so CRT distributions and trust-level gains deserve particular attention. Build the 3.8 percent into the comparison from the start, because it can meaningfully change which strategy saves the most.