Capital gains taxes can put a significant dent in the wealth you’ve worked hard to build. Whether you’re selling real estate or a business, the IRS is ready to collect a share. But if you understand and apply the right tax-deferred strategies, you can take control of your financial outcome while keeping your money working for you.
Here’s a breakdown of effective, legal strategies that you can use for capital gains deferment to preserve your wealth.
1. 1031 Exchange
The 1031 exchange is a common tax-deferral tool for selling investment properties. It lets you sell one property and roll the proceeds into another “like-kind” property, deferring capital gains and depreciation recapture taxes in the process.
But there’s a catch. The 1031 exchange has strict deadlines and parameters. You have 45 days to identify your replacement property and 180 days to close.1 The replacement property must also have the same intended use (ie., business or personal use). Its fair market value should typically equal or exceed the value of the property you sold, and the equity and debt carried over must align closely with the original property to maintain the tax-deferred treatment.2
So while the 1031 is useful, it limits your reinvestment options to real estate, and you have a limited time to complete the process. As such, it’s best when you already have a plan and timeline in place for your next property.
2. Deferred Sales Trust
A Deferred Sales Trust (DST) allows you to sell an appreciated asset without immediately triggering capital gains tax. Here’s how it works. You transfer ownership of the asset to a third-party trust before the sale. The trust then sells the asset, and because you didn’t receive the proceeds directly, you don’t owe any capital gains tax upfront.
The trust invests the funds on your behalf according to a custom plan. You receive income over time, often in the form of installment payments. This gives you greater control over your tax exposure across multiple years, helping you manage your tax bracket and preserve liquidity.
Similar to a 1031 exchange, you can use a DST to defer capital gains tax on real estate. However, you can also use it to exit stocks, businesses, cryptocurrency, or other appreciated assets, and then reinvest in a variety of opportunities, such as private equity or market investments.
3. Opportunity Zones
Another option for deferring capital gains is Opportunity Zones. These are federally designated areas that offer tax incentives to investors who reinvest gains into long-term projects in underserved communities.
You can defer capital gains tax on a prior investment if you reinvest in a Qualified Opportunity Fund (QOF) within 180 days of the sale.3 The longer you hold the QOF investment, the greater the benefits:
- 5+ years: Partial exclusion of the deferred gain
- 10+ years: No capital gains tax on profits from the QOF investment itself
This strategy works well if you want to support economic development while enjoying substantial tax breaks. However, it’s not ideal for short-term investors. Be sure to conduct due diligence on the fund and its projects.
4. Installment Sales
If you’re selling a high-value asset, an installment sale lets you spread both the gain and the tax over multiple years. You agree to receive payments from the buyer over time instead of a lump sum. Each payment includes a portion of the original cost basis, interest, and capital gain.
This keeps your taxable income lower each year and helps you avoid bumping into a higher tax bracket. It also offers the potential to earn interest on the unpaid portion. However, you need to manage the risk of buyer default, and you give up access to all of your capital up front.
Installment sales work best when the buyer is someone you trust and when you’re comfortable playing the long game.
5. Charitable Remainder Trust
For those who are philanthropically inclined, a Charitable Remainder Trust (CRT) offers a way to reduce taxes while giving back. You transfer the appreciated asset into the trust, which then sells it. Since the trust is a tax-exempt entity, no capital gains tax is due on the sale.
You receive income from the trust for a set period, and the remainder eventually goes to a charity of your choice. You also receive a charitable tax deduction when the trust is established.
This strategy is ideal if you want income while building a legacy of impact. But you should only pursue it if charitable giving is a core part of your wealth strategy.
Choosing the Right Strategy for You
The best tax-deferred strategy depends on your goals and the type of asset you’re selling. Ask yourself:
- Are you looking for investment flexibility?
- Do you want income over time or a lump sum?
- Are you planning to reinvest in real estate or diversify your portfolio?
- Is charitable giving part of your long-term plan?
The answers to these questions will guide you toward the option that protects your gains while keeping your future in focus.
Take Control of Your Wealth
When it comes to capital gains, the worst strategy is doing nothing. Many investors leave money on the table simply by not planning ahead. With smart, legal tax-deferred strategies, you can keep more of your wealth and still pursue the next phase of your financial journey with confidence.
1https://www.irs.gov/instructions/i8824#en_US_2025_publink1000103103
2https://www.irs.gov/taxtopics/tc409
3https://www.irs.gov/credits-deductions/businesses/invest-in-a-qualified-opportunity-fund
Video
Infographic
Capital gains taxes can significantly reduce your wealth when selling assets like real estate or a business. Fortunately, legal strategies exist to defer these taxes and keep your money invested longer. Explore this infographic to learn how capital gains deferment can help preserve your wealth.
