Sell an appreciated stock, and the IRS wants a cut of the gain. That’s the rule, and there’s no way around it once a sale actually happens.
You can’t avoid capital gains tax on stocks, so the better question to ask is: How can you reduce or defer what you owe?
What triggers capital gains tax in the first place
Capital gains tax applies to the profit when you sell an investment for more than you paid for it (your cost basis). How much you owe depends heavily on how long you held the position:
- Short-term (held one year or less): taxed as ordinary income, at your regular income tax rate.
- Long-term (held more than one year): taxed at the long-term capital gains rate, which is 0%, 15%, or 20% federally, depending on your income, plus whatever your state charges on top.
Selling a position one day sooner than the one-year mark, instead of one day later, can mean paying your full ordinary income rate instead of the lower long-term rate. If you’re close to that line, it’s worth checking the date before you sell.
You can’t avoid capital gains tax on stocks, but here’s how you can reduce and defer
Hold longer than a year
The simplest strategy is to avoid selling until you’ve reached the one-year mark, so the gain qualifies for long-term capital gains treatment instead of ordinary income rates. It doesn’t reduce the size of the gain, but it can meaningfully reduce the rate applied to it.
Tax-loss harvesting
If you hold other investments that have lost value, selling them realizes a capital loss that can offset gains elsewhere in your portfolio. The IRS’s wash-sale rule prevents you from claiming the loss if you buy a “substantially identical” security within 30 days before or after the sale, so this only works if you’re comfortable staying out of that specific position for a short period.
Gifting or donating appreciated shares
Donating appreciated stock directly to a qualified charity (often through a donor-advised fund) lets you skip capital gains tax on the donated shares entirely, while also generating a charitable deduction for the current market value. The tradeoff is permanent — once donated, that value is gone from your personal portfolio for good, so this only fits the portion of a position you were planning to give away, regardless.
Exchange funds
For investors with a large, appreciated position (not a few thousand dollars, but a position that would trigger a genuinely painful tax bill if sold) an exchange fund offers a different kind of deferral. You contribute your shares to a pooled fund in exchange for a diversified stake, rather than selling for cash. Because it’s an exchange rather than a sale, no capital gains tax is due at contribution. Under Section 721 of the tax code, that deferral holds as long as you stay in the fund, after which you can redeem a diversified basket of holdings, with your original cost basis carrying over.
Comparing your options
| Strategy | How it works | Best for | What you give up |
|---|---|---|---|
| Hold past one year | Wait for long-term rate treatment | Positions close to the one-year mark | Time — the gain is still taxed, just at a lower rate |
| Tax-loss harvesting | Offset gains with losses elsewhere | Investors with existing unrealized losses | Limited to available losses; wash-sale rule restricts re-entry |
| Gifting/donating | Give appreciated shares to charity | Investors with genuine charitable intent | Permanent — you don’t keep the value or the shares |
| Exchange fund | Contribute shares for a diversified stake, no sale | Large, concentrated positions | Liquidity — a multi-year hold, typically seven years, to keep the deferral |
If you’re sitting on an appreciated and concentrated position, see if you qualify for Glidepath — a way to diversify without the immediate tax hit.
Why exchange funds are the strongest option for large concentrated positions
The strategies above each solve a piece of the problem. Holding longer helps with rate. Tax-loss harvesting only offsets what you have in losses elsewhere. Donating removes the tax bill but also removes the asset from your net worth.
An exchange fund is the one option built specifically for someone who wants to keep the full value of a large position, get it out of a single stock, and not pay tax on the way. Eventually, when you sell, you will pay capital gains, but you can pay it later after your capital has had several more years to grow as part of a diversified fund.
If the reason you’re asking how to avoid paying capital gains tax when you sell stock is that you’re sitting on a position large enough that the tax bill itself is the obstacle, an exchange fund is generally the strategy worth the closest look, since it’s the only one on this list designed around exactly that problem.
Glidepath‘s exchange fund runs this way with no management fee, funded by revenue-generating assets as the fund’s qualifying illiquid asset rather than the real estate other providers use. It’s open to accredited investors — individual income over $200,000, joint income over $300,000, or net worth over $1 million excluding your primary residence — with a $100,000 minimum contribution.
Ready to diversify your portfolio without the huge tax hit?