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I once had a boss who, even though he was not working in Florida, would frequently fly to Florida for just the weekend or stay for extended periods at his residence there in order to be able to claim Florida as his principal residence for tax purposes.

Also, I believe he resigned because he was expecting a large amount of capital gains not long after his resignation.

So this leads to my question: what are common, legitimate strategies people use to minimize the impact of large, realized capital gains within a given year?

  • claim a principal residence in a state with no state taxes?
  • reduce the amount of normal W-2/1099 income, since those sources of income increase the amount of capital gains tax and thereby reduce the value of normal income? (Or so it seems to me, running hypothetical numbers.)
  • Other?

Please note: this question is not about finding a state to go to with no taxes; that was just an example. This question is about common strategies, if any people use to reduce the impact of a large, realized capital gain.

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    The tax advantage of Florida is no state tax. Capital gains is Federal taxation. You can't just fly frequently fly to Florida for just the weekend or stay for extended periods to claim tax status. Most states require that you spend more than half the year in the state to claim residency. – Bob Baerker Feb 25 at 18:27
  • Another few words, this would be a good answer. – JTP - Apologise to Monica Feb 25 at 19:34
  • @JTP-ApologisetoMonica I don't know the exact details of my boss's time in Florida; my question was not about him, either. He legit spent enough time in Florida during the year to to claim it as his principle residence, thereby, among other things, avoiding state taxes on capital gains, as opposed to a state like NY, CA, WI, etc. I'm not trying to be difficult; I just hope it's clear what my actual question is, highlighted above in bold. – mg1075 Feb 25 at 20:05
  • Being US citizen, very unlikely. But there is citizenship of Monaco and other similar countries which act like "tax heaven", where you register company and put your shares on it. – sanaris Feb 26 at 15:54
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I found your question slightly confusing because you mention "long-term capital gains" in your heading, and then talk about minimising within a given year?

But anyway, a lot of investors from the US invest in nations where there is no capital gains tax. For example, New Zealand never had a capital gains tax on real estate investments and foreigners are permitted to buy property there (although the rules have changed a little bit recently in regards to both taxes and ownership, so there are a few limitations on this now). Due to the lack of a capital gains tax, investing in large beach front properties in NZ was a popular choice for Americans. However, US citizens are still taxed back at home by the IRS, even though NZ's IRD doesn't apply capital gains taxes to the sale of the real estate.

Some investors say they avoid capital gains taxes by simply never selling the asset. For example, you can pass your real estate investment portfolio onto your grandkids who pass it onto their kids (family trusts can be created to avoid inheritance tax issues). You still profit from rental income each year, but you avoid capital gains taxes this way.

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Currently-held large unrealized capital gains ?

The position is never sold but only hedged. Simple rules can be followed to avoid a constructive-sale.

Or if income is needed then the position could be sold in yearly incremental amounts. Or covered-calls could be written on the position to provide income. Finally, half the amount of the position can be taken out of the brokerage account on margin loan. Or by staying in the account then the account can be doubled on margin loan.

The taxes are ultimately avoided by an estate transfer to an heir. The only problem is the estate tax threshold.

Or for realized capital gains in 2019 or 2020 and by one method, if the investment proceeds are invested in an Opportunity Zone within 180 days and held for five years, then the capital gains are reduced by 10% and otherwise the capital gains are deferred.

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  • Realized capital gains; but thanks for bringing up the distinction. – mg1075 Feb 26 at 16:26
  • Margin loan rates at major US discount brokers is about 6% - 8% on a million dollar margin loan and even higher if the loan is less. It would make more sense to sell off a portion of the appreciated assets and pay the taxes in equivalence. Covered calls isn't necessarily the panacea. If assigned, the full tax bite will be realized. If instead the short calls are bought back at a loss to avoid assignment, that may lead to wash sale issues. And holding on to appreciated assets to avoid taxation may be cutting your nose to spite your face (bear market?). – Bob Baerker Feb 26 at 17:47
  • Margin rates are available, from brokers that specialize in institutional traders, at less than the rate of a 30 year mortgage. Covered-calls can be bought back, if needed, to avoid capital-gains on the underlying. And as said, holding appreciated assets can be done with hedging. – S Spring Feb 26 at 18:16

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