How Concentrated Stock Positions Get Unwound Tax-Efficiently

A decision framework for balancing diversification, liquidity, philanthropy, leverage, and the tax bill

July 25, 2026

A concentrated stock position creates an unusually visible tax problem and an unusually invisible investment problem. The tax can be calculated to the dollar. The risk of continuing to hold the stock cannot. That asymmetry is why otherwise rational investors can spend years protecting a future tax bill while leaving a much larger portion of their wealth exposed to one company, one management team, one industry, and sometimes the same employer that provides their income.

There is no single “best” way to unwind a highly appreciated position. The right strategy depends on what the family is actually trying to preserve: wealth, liquidity, control, upside, charitable impact, or a tax deferral that may last for decades. The useful first distinction is whether a strategy eliminates tax on qualifying appreciation, defers the recognition date, offsets the gain with losses, or merely hedges or finances the position without diversifying it. Those outcomes are not interchangeable.

The short answer on tax brackets is straightforward. If the gain fits inside the 0% long-term capital-gain band, selling is usually the cleanest answer. At 15% with no 3.8% net investment income tax and little or no state tax, a staged or immediate sale often remains more attractive than an expensive, illiquid structure. The case for direct indexing, a tax-aware 130/30 portfolio, an exchange fund, or a properly structured variable prepaid forward becomes more compelling when the gain would otherwise face 23.8% federal tax plus a meaningful state tax. Charitable strategies are especially tax-efficient when the owner both intends to give and receives a high marginal value from the charitable deduction. None of those observations changes the central rule: the strategy should be chosen by expected after-tax, after-fee wealth and the amount of concentration risk actually removed—not by the size of the tax bill postponed this year.

Suppose a portfolio contains $1,000,000 of one stock with a $100,000 cost basis. A complete sale creates a $900,000 long-term gain. At a 23.8% federal rate, the federal tax is approximately $214,200 before state tax. That is painful, but it is also finite and knowable. The position’s future drawdown is neither. A 30% decline would reduce the position by $300,000; a 50% decline would reduce it by $500,000. Those figures are not forecasts. They simply show why “avoid the tax” is not an adequate investment objective.

A concentrated position should therefore be evaluated in two ledgers. The tax ledger measures embedded gain, holding period, federal and state rates, available losses, charitable deductions, estate exposure, and the time value of deferral. The risk ledger measures the position as a percentage of investable wealth, its relationship to employment and deferred compensation, liquidity needs, issuer-specific risk, downside tolerance, and the family’s capacity to wait. A strategy that improves only the first ledger can still leave the plan worse.

Concentration is also personal. A founder who retains voting control, an executive subject to trading windows, an employee holding restricted stock, and an heir with an unrestricted legacy position may own the same ticker but face entirely different decisions. Before choosing a structure, the owner should confirm tax lots and basis, long- versus short-term holding periods, securities-law or company restrictions, pledging limitations, charitable intent, liquidity needs, and whether any special rule—such as qualified small business stock or net unrealized appreciation—applies before the shares are sold.

For 2026, the federal long-term capital-gain rate is 0% while taxable income—including the gain stacked on top of other taxable income—does not exceed $49,450 for single filers or $98,900 for married couples filing jointly. The 15% band then extends to $545,500 for single filers and $613,700 for joint filers, with amounts above those thresholds generally taxed at 20%. Heads of household use $66,200 and $579,600; married taxpayers filing separately use $49,450 and $306,850.¹

The 3.8% net investment income tax is a separate calculation. It generally applies to the lesser of net investment income or modified adjusted gross income above $200,000 for single and head-of-household filers, $250,000 for married couples filing jointly, and $125,000 for married taxpayers filing separately. Those thresholds are not indexed for inflation. A taxpayer can therefore remain in the 15% capital-gain band while some of the gain is subject to the NIIT, producing an 18.8% federal marginal rate.² State tax can move the combined marginal rate materially higher, and some states do not provide a preferential rate for long-term gains.

This produces four planning zones. In the 0% zone, the scarce asset is unused 0% capacity; it should rarely be sacrificed merely to preserve basis. In the 15% zone without NIIT or state tax, simplicity has a high value and complex deferral must work harder to justify itself. In the 18.8% or 23.8% federal zone, especially when paired with state tax, loss harvesting and long deferral become more valuable. In the highest ordinary-income brackets, charitable gifts of appreciated property can be especially efficient because they may avoid capital-gain tax and generate an itemized deduction, although the 2026 charitable-deduction floor and high-income limitation reduce the value at the margin.

The taxpayer’s current bracket is only one input. A deferral is attractive when the future rate is expected to be lower, when the tax can be deferred for a long time, or when a later charitable gift or basis adjustment at death may prevent recognition altogether. It is less attractive when the future rate may be higher, the position must be sold soon, fees consume the benefit, or the structure preserves the same economic concentration.

Figure 1: 2026 federal long-term capital-gain bands for selected filing statuses. Capital-gain bands are based on taxable income; the red NIIT markers show separate modified-adjusted-gross-income thresholds. Federal only.

The baseline strategy is a taxable sale followed by immediate diversification. Its advantages are easy to underestimate because they are operational rather than exotic: the position is actually reduced, the proceeds are liquid, the portfolio can be aligned with the financial plan, there is no counterparty or lockup, and future decisions are not controlled by a bespoke structure. The disadvantages are equally clear: the tax is due now, the gain can trigger NIIT and state tax, and a large sale can push part of the gain into the 20% federal band.

A staged sale divides the position across tax years, specific price targets, trading windows, or predetermined diversification dates. It can fill remaining 0% or 15% capital-gain capacity, coordinate with retirement, a sabbatical, a business loss, charitable deductions, or other low-income years, and reduce the risk of one all-or-nothing timing decision. Its principal cost is that concentration remains during the transition. The stock can decline, tax rates can change, and a sale spread over too many years can become a tax rationale for indefinite inaction.

Specific-lot identification matters. Selling higher-basis long-term lots first generally removes more exposure per dollar of realized gain. Selling short-term lots can subject the gain to ordinary-income rates, so waiting until the one-year holding period is met may be worthwhile when the remaining wait is short and the investment risk is tolerable. The holding period should not become a veto, however. A material company-specific risk can be more expensive than the difference between short- and long-term rates.

Publicly traded stock generally cannot use the installment-sale method simply to spread gain recognition after the shares are sold.¹⁶ That is an important distinction from privately held business interests and real estate. For a liquid public security, staging usually means staging the actual sales.

For dollars the family already intends to give away, donating appreciated stock directly to a public charity or donor-advised fund is often the most efficient first move. Long-term appreciated publicly traded stock can generally be deducted at fair market value, subject to the applicable adjusted-gross-income limits, while the embedded gain on the donated shares is not recognized by the donor. A 30% of AGI limit commonly applies when long-term capital-gain property is deducted at fair market value, and unused deductions can generally carry forward for five years.⁵ The donor should normally contribute the most appreciated eligible lots before any sale and allow the charity or DAF sponsor to sell them.

The benefit is strongest when three facts coincide: the gift is genuine and irrevocable, the stock has a very low basis, and the donor itemizes at a meaningful marginal rate. Beginning in 2026, itemizers generally receive a charitable deduction only for aggregate contributions above 0.5% of contribution-base AGI. Taxpayers in the 37% bracket are also subject to a limitation that generally reduces the marginal federal value of affected itemized deductions to 35 cents per dollar.⁶ Those new rules do not make appreciated-stock giving unattractive, but they do mean that a charitable projection should not use the old shorthand of “deduction times 37%” for every dollar.

The obvious disadvantage is also the point: the donated wealth no longer belongs to the family. A DAF preserves advisory privileges over future grants, not ownership, personal access, or a right to reclaim the assets. If a sale of the stock is already effectively committed, tax counsel should review assignment-of-income risk before the gift is completed.

A charitable remainder trust is different. The owner irrevocably transfers the stock to a CRAT or CRUT, the trust may sell and reinvest without an immediate capital-gain tax at the trust level, one or more noncharitable beneficiaries receive an annuity or unitrust payment for life or a term of up to 20 years, and charity receives the remainder. The payout is generally between 5% and 50%, and the actuarial value of the charitable remainder must generally be at least 10% of the initial contribution. The donor receives a partial charitable deduction based on that remainder interest.⁷

A CRT is best understood as a charitable split-interest vehicle with tax deferral, not as a tax-free personal brokerage account. Distributions follow a statutory ordering system: ordinary income first, then capital gain, then other income, and finally corpus. The embedded gain can therefore reach the beneficiary gradually as payments are made. The trust is irrevocable, the charitable remainder is real, administration and tax reporting are ongoing, and the economics are sensitive to payout rate, life expectancy, investment returns, and interest-rate assumptions.

The structure is most attractive for a charitably inclined owner with a very large low-basis position, a need for a lifetime or term income stream, a long horizon, and a federal-plus-state rate high enough to make deferral valuable. It is generally unattractive when the owner wants the principal back, needs unrestricted liquidity, has no charitable objective, or expects to consume most of the capital. Conventional design also matters. In July 2026, Treasury and the IRS finalized rules identifying certain abusive CRAT transactions involving single-premium immediate annuities as listed transactions.⁸ Promoters who describe a CRT as creating a basis step-up that permanently erases gain for the family are describing something materially different from the ordinary compliant use analyzed here.

An exchange fund allows multiple owners of concentrated positions to contribute eligible stock to a pooled partnership and receive an interest in a diversified portfolio without an immediate taxable sale, assuming the contribution and fund are properly structured. After a holding period that is normally at least seven years, an investor may redeem for a basket of securities. The contributed basis carries into the partnership interest and ultimately into distributed assets, so the structure defers the gain; it does not eliminate it.⁹

The appeal is direct. The investor can move from one stock to a broader collection of securities without an immediate realization event and without requiring charitable intent. For someone with an extremely low basis, a long time horizon, no near-term need for the capital, and a desire to preserve a potential future charitable gift or basis adjustment at death, a long deferral can be valuable.

The trade-offs are substantial. Exchange funds are generally private placements with investor-eligibility requirements, manager acceptance, minimum investments, limited liquidity, and meaningful fees. To satisfy diversification rules, they commonly hold at least 20% in qualifying nonsecurity assets, often real estate that may itself be leveraged. That introduces property, interest-rate, valuation, and manager risk. The pooled portfolio may not match a preferred index; the manager may reject an overrepresented stock; and tax deferral can be impaired if the fund must sell contributed securities. Redemption before the required holding period can also change the tax result.

An exchange fund diversifies company-specific risk more effectively than a collar or loan, but it replaces that risk with partnership, manager, liquidity, and nonsecurity-asset exposure. It is most defensible in the 23.8%-plus-state zone, when the expected holding period is comfortably longer than seven years and the investor can accept the fund’s actual assets—not merely the tax label.

Direct indexing places the securities of an index into a separately managed account rather than owning the index through one fund. That creates many individual tax lots that can be harvested when they trade below basis, while a completion portfolio can intentionally exclude or underweight the concentrated issuer and related industry exposures.¹⁰ Harvested capital losses first offset capital gains. If losses exceed gains, up to $3,000 can generally offset ordinary income each year, with the balance carried forward.³

For a concentrated-stock transition, the strategy is often implemented with new cash or a diversified taxable portfolio alongside a scheduled sale of the low-basis stock. Losses created in the direct-indexing account are used to offset gains from the stock sale. This can reduce the current tax cost while maintaining diversified market exposure.

The crucial limitation is that direct indexing does not make the original stock’s gain disappear. It manufactures or accelerates losses elsewhere, and replacement securities usually have lower basis. The benefit is therefore often deferral. Loss opportunities depend on market dispersion and volatility, become less plentiful as an account seasons, and cannot be guaranteed in the year a sale is required. The strategy can also create tracking error, many small positions, management fees, and a growing low-basis portfolio that is expensive to liquidate later.

Wash-sale coordination must occur across the household, including spouse accounts, IRAs, employer plans, and outside managers. A loss can be disallowed when substantially identical property is acquired within 30 days before or after the sale.⁴ A credible direct-indexing proposal should therefore show expected loss capacity, fees, tracking risk, household wash-sale controls, the planned use of losses, and the tax cost of the eventual unwind.

Direct indexing is generally most valuable when the owner faces gains taxed at 18.8% or 23.8% federal plus state, has several years to complete the transition, can fund a meaningful completion portfolio, and expects additional capital gains that can absorb losses. It is less compelling when the owner is in the 0% band, the sale must happen immediately, the taxable portfolio is small relative to the concentrated position, or the harvested losses will sit unused.

A tax-aware 130/30 portfolio is a more aggressive extension of direct indexing. A representative structure invests approximately 130% of capital in long positions and 30% in shorts, leaving 100% net market exposure but 160% gross exposure. The long and short books create more positions that can move against their tax basis, giving the manager a larger opportunity set for realizing losses while maintaining broad equity exposure. Those losses may be coordinated with a multi-year sale of the concentrated stock.¹¹

The tax benefit is more nuanced than the marketing phrase “loss generation” suggests. Research on tax-aware long-short strategies indicates that simulated net losses can arise not only from additional gross losses but also from deferring gains—particularly short-term gains in the long book.¹² That distinction matters because a deferred gain remains a future liability. A model that reports cumulative realized losses without showing embedded gains, financing costs, and the tax cost of closing the strategy is incomplete.

The advantage over long-only direct indexing is capacity. A long-short manager may be able to generate larger offsets and transition a concentrated position faster while preserving market exposure. The disadvantages are leverage, short-borrow and financing costs, margin risk, recall and short-squeeze risk, active security-selection risk, tracking error, higher fees, tax-lot complexity, and the possibility of forced deleveraging at the wrong time. Short-sale tax character and payments in lieu of dividends add further complexity.⁴ The short side can lose more than the amount initially invested in a security, and loss targets are never guaranteed.

This approach is most defensible for an investor in the 23.8% federal bracket plus meaningful state tax, with a large known gain, several years of runway, ample collateral and liquidity, and a genuine willingness to accept leverage and active-manager risk. It is usually excessive for a taxpayer in the 0% or uncomplicated 15% zone. It should also be compared with a direct sale using conservative—not backtested headline—assumptions for loss realization, active return, financing, fees, and terminal tax.

A protective put buys a floor beneath the stock while retaining upside, in exchange for an option premium. A collar combines a purchased put with a written call; the call premium can help finance the put, but upside is capped. These tools can reduce short-term risk during a trading restriction, while a holding period matures, or while a staged sale is implemented. They do not by themselves diversify the wealth or create spendable proceeds.

Tax design is critical. The constructive-sale rules can accelerate gain when a transaction substantially eliminates both the upside and downside of an appreciated financial position. A short sale of the same or substantially identical security is a classic trigger, and certain forwards or combinations can also create constructive-sale or straddle issues.¹³ A collar that is sensible economically can still be poorly designed for tax purposes. Option expiration, exercise, assignment, dividends, holding periods, and company pledging policies must all be modeled before execution.

A variable prepaid forward can provide substantial liquidity today in exchange for delivering a variable number of shares or cash at maturity. A properly structured transaction may establish a downside floor, preserve some upside up to a cap, and defer gain recognition until settlement. The variability of the ultimate share delivery and the owner’s retained rights are central to avoiding immediate sale treatment. The transaction generally creates a tax straddle, which can defer losses and affect holding periods.¹⁴

The advantages are immediate liquidity, meaningful risk reduction, and tax deferral without an outright current sale. The disadvantages are counterparty credit exposure, financing and structuring costs, capped participation, documentation complexity, collateral restrictions, and the possibility that an economically tight hedge is treated as a constructive sale. Rolling a forward after a large stock decline can also be expensive. A VPF is most appropriate for a very large, liquid position whose owner needs liquidity and protection but has a specific reason not to sell today. It is not a substitute for a long-term diversification plan.

A securities-backed line of credit can produce liquidity without a sale, and loan proceeds are generally not taxable income. That can be useful as a short bridge for taxes, a home purchase, a business need, or a planned sale that cannot yet be completed. The tax deduction for interest depends on how the proceeds are used, not on the fact that stock secures the loan. Investment-interest deductions are generally limited by net investment income, and electing to treat preferential capital gain as investment income can give up the preferential rate on that amount.⁴

Borrowing is not an unwind. The stock remains concentrated, and using the loan to buy other assets creates a leveraged portfolio rather than a diversified unlevered one. Variable interest expense, collateral haircuts, lender concentration limits, maintenance calls, and forced sales can become most severe when the stock is already falling. The strategy is therefore strongest as a modest, time-limited bridge with a repayment source and a large collateral cushion. “Borrow forever” is not a prudent plan for a family whose lifestyle, taxes, and portfolio all depend on the same stock price.

Giving stock to a family member generally transfers the donor’s basis; it does not reset the gain. If the recipient is an adult in a genuinely lower capital-gain bracket, a gift may shift future tax to a lower-rate taxpayer while also advancing an estate-planning goal. The result can be limited by the kiddie-tax rules, gift-tax reporting, loss of control, creditor or marital risks, and the recipient’s own state and federal position. The 2026 annual gift-tax exclusion is $19,000 per recipient, while the federal basic exclusion amount is $15 million.¹ Larger gifts can use lifetime exemption but require deliberate estate-tax analysis.

Holding the stock until death can produce the strongest income-tax result under current law because inherited property generally receives a basis tied to fair market value at death, while lifetime gifts generally carry the donor’s basis.¹⁵ The pre-death appreciation can therefore disappear from the income-tax system if the heir later sells near the date-of-death value. That is tax elimination, not merely deferral.

The price is continued concentration risk, no lifetime diversification, and dependence on current law. The strategy can be rational when the position is a manageable share of the estate, the owner has ample liquidity elsewhere, the stock is intended for heirs, and the estate plan has been coordinated with the $15 million federal exclusion and any lower state estate or inheritance-tax threshold. It is weak when the stock can impair retirement security, the owner needs the capital, or an estate-tax exposure makes basis step-up only one part of a larger transfer-tax problem.

Several narrow rules can dominate every general strategy in this memo. They should be screened before shares are sold, contributed, pledged, or hedged.

Qualified small business stock under Section 1202 may exclude some or all eligible gain when stock was acquired at original issue from a qualifying C corporation and the statutory requirements are satisfied. Stock acquired after September 27, 2010 and held at least five years may qualify for a 100% exclusion, subject to the applicable limits. The 2025 legislation added graduated exclusions for newly issued qualifying stock—50% after three years, 75% after four, and 100% after five—and increased the per-issuer exclusion and gross-asset limits for qualifying post-enactment shares.^17,19 A company’s later public status does not necessarily erase original-issuance eligibility. The original subscription documents, issuance date, company asset history, and use of proceeds should be reviewed before relying on the exclusion.

Net unrealized appreciation can apply to employer stock distributed from a qualified retirement plan in a qualifying lump-sum distribution. The plan’s cost basis is generally taxed as ordinary income at distribution, while the NUA can remain deferred and later receive long-term capital-gain treatment. Triggering events, the one-tax-year lump-sum requirement, plan-level records, and rollover choices are strict.¹⁸ Rolling the shares to an IRA before the analysis can permanently lose the opportunity.

Section 1042 can defer gain for an eligible owner who has held qualified employer securities for at least three years, sells them to an ESOP or eligible cooperative that reaches the required ownership threshold, and buys qualified replacement property during the statutory window. Basis carries into the replacement property.¹⁷ This is a business-succession tool, not a general solution for ordinary public-market stock.

Qualified Opportunity Funds are frequently mentioned as gain-deferral vehicles, but timing now matters. Under the legacy regime, the original deferred gain is recognized no later than December 31, 2026, so a new July 2026 investment offers little deferral of the original gain. A permanent regime begins in 2027 with a rolling five-year deferral, a basis increase after five years, enhanced treatment for qualified rural funds, and potential exclusion of post-investment appreciation after a long holding period.^19,20 A QOF remains an illiquid real-estate or operating-business investment with fees, execution risk, and limited diversification. It should be purchased only when the investment stands on its own merits.

The comparison table and Figure 2 organize the alternatives by their economic effect. “Eliminate” applies only to qualifying amounts and conditions. “Defer” means the gain or its basis generally survives somewhere. “Offset” means another realized loss absorbs the gain. “Hedge or finance” means liquidity or downside protection improves while the concentrated position remains.

No strategy receives a free pass because it has a favorable tax label. A direct charitable gift gives away principal. A CRT gives charity a remainder. An exchange fund accepts lockup and pooled assets. Direct indexing accepts tracking error and future low basis. A 130/30 portfolio adds leverage and short risk. A VPF caps upside and adds counterparty risk. Holding until death preserves the issuer exposure. The right comparison is therefore not “tax versus no tax.” It is one complete balance sheet versus another.

Figure 2: Concentrated-stock strategies classified by economic tax effect. Elimination applies only to qualifying amounts and conditions. Deferral and offset strategies generally preserve basis or a future tax liability somewhere.

Figure 3 returns to the $1,000,000 position with a $100,000 basis. The taxable gain is $900,000, so the tax cost is the marginal combined rate applied to 90% of the position. At a 15% rate, the tax is $135,000. At 18.8%, it is $169,200. At 23.8%, it is $214,200. Adding illustrative state rates of 5% or 10% increases the total to approximately $259,200 or $304,200, before any state deduction interaction.

That illustration shows why sophisticated planning becomes more valuable as the combined rate rises. It also shows why the embedded-gain percentage matters. The owner of the same $1,000,000 position with a $700,000 basis has only a $300,000 gain and a far smaller tax obstacle. Strategy costs should be compared with the actual tax potentially deferred, not the market value of the position.

A useful model should calculate the present value of taxes, fees, financing, charitable transfers, and terminal unwind costs under multiple return paths. It should also show how much company-specific exposure remains after implementation. A structure that defers $214,200 for two years while charging large fees and preserving most of the stock risk may be inferior to a sale. A structure that defers the same tax for decades, genuinely diversifies the position, and preserves a credible charitable or estate endpoint may be valuable.

Figure 3: Illustrative tax on a $1,000,000 position with $100,000 of basis. The $900,000 long-term gain is multiplied by selected combined marginal rates. State examples exclude deductions, sourcing rules, and other interactions.

The 0% long-term capital-gain band is the clearest answer. When gain can be realized at 0%, direct sale or staged realization is usually superior to paying for a deferral. Owners should consider intentionally filling unused 0% capacity each year, provided the sale fits the investment plan and does not create an unexpected NIIT, state, or benefit-related consequence.

The 15% band without NIIT or material state tax favors simplicity. A direct sale, a multi-year schedule, or a charitable gift for already-intended giving will often beat an exchange fund, VPF, or long-short structure after fees and restrictions. Complexity may still be justified for an enormous position, a long horizon, or a non-tax need such as immediate liquidity or downside protection, but the burden of proof is higher.

The 18.8% and 23.8% federal zones are where direct indexing and tax-aware long-short transitions become most valuable, particularly when losses will be used promptly and a high-tax state raises the avoided rate. An offset against a 23.8%-plus-state long-term gain is worth more than the same loss used at 15%. If a strategy can preferentially defer short-term gains otherwise taxed at ordinary rates, the value may be higher still, but the tax character must be verified rather than assumed.

Charitable strategies have a different rate profile. Avoiding capital-gain tax is more valuable as the embedded gain and capital-gain rate rise; the deduction is more valuable as the donor’s ordinary-income rate rises. A donor in the 32%, 35%, or 37% ordinary bracket with 23.8%-plus-state capital-gain exposure may receive a strong combined benefit, subject to the 2026 floor, deduction limits, carryforward capacity, and the new high-income limitation. That is beneficial only because the donor wanted to commit the asset to charity.

Exchange funds and VPFs are generally most compelling at 23.8% federal plus state because their main benefit is deferral rather than an offsetting deduction. The horizon matters as much as the bracket: deferring a 30% combined tax for 20 years can be meaningful; deferring it for two years may not survive fees and risk. Holding until death can be powerful in any positive bracket because it may eliminate the gain under current law, but the investment and estate risks—not the bracket—usually determine whether that path is responsible.

Selling and paying is usually the better answer when the position can materially impair the financial plan, when liquidity is needed, or when a company-specific event can overwhelm the projected tax savings. The same is true when the gain can be realized in the 0% band, when the combined rate is modest, when the basis is higher than the owner assumed, or when available losses already make the sale affordable.

It is also better to sell when the proposed structure solves the wrong problem. A loan produces cash but does not diversify. A collar reduces downside but preserves ownership and caps upside. A direct-indexing account may be too small to generate losses commensurate with the concentrated gain. A 130/30 strategy may expose a conservative family to leverage it would never otherwise accept. An exchange fund may lock up capital needed within seven years. A CRT may be inappropriate when there is no charitable intent. In each case, the tax benefit is real only if the economic trade is acceptable without the tax narrative.

Time is another reason to sell. If the family is likely to liquidate the replacement portfolio in a few years, a deferral structure may simply move the same bill forward after fees. If the stock is already under pressure, waiting for a lower bracket, a longer holding period, or enough harvested losses can turn tax planning into loss magnification. A tax liability is a fraction of the gain; a deteriorating stock can put principal at risk.

Finally, a complete sale need not mean a single trade on a single day. A disciplined schedule can preserve some upside, spread rate exposure, coordinate with losses and charitable gifts, and avoid an emotional market-timing decision. “Pay the tax” and “plan the sale” are compatible. The mistake is allowing tax aversion to become an unbounded commitment to one security.

The first step is verification: reconstruct basis and holding periods, identify restricted and unrestricted shares, review company trading and pledging policies, confirm state residency and sourcing, and screen for QSBS, NUA, Section 1042, charitable, and estate considerations. A missing basis record or lost special eligibility can be more consequential than the choice of manager.

The second step is to define an acceptable concentration range and a deadline. The target should be expressed as a percentage of investable wealth and stress-tested against a severe stock decline, employment loss, and upcoming spending. Without a target and date, every tax strategy becomes a reason to wait.

The third step is to separate shares by purpose. Shares intended for charity should generally be evaluated for contribution before a taxable sale. Shares likely to receive a basis adjustment at death should be distinguished from shares funding lifetime spending. Higher-basis lots may be sold first; low-basis lots may be candidates for charitable, exchange-fund, or estate strategies.

The fourth step is a multi-year tax projection. It should stack capital gains on other taxable income, calculate NIIT separately, incorporate state tax, model charitable-deduction limits and carryforwards, and compare today’s rate with plausible future rates. The projection should include a plain taxable sale as the control case.

The fifth step is an economic comparison. Each alternative should show taxes paid and deferred, fees, financing, expected tracking or active risk, liquidity, downside exposure, counterparty exposure, charitable value transferred, estate consequences, and the terminal unwind. Backtested tax alpha should be discounted heavily; contractual costs and known tax rules should not.

The final step is coordinated execution. The investment adviser, CPA, estate attorney, securities counsel where needed, plan administrator, charity or DAF sponsor, and any specialty manager should work from the same lot-level schedule. The order of operations matters. A sale, rollover, pledge, hedge, or binding commitment completed too early can permanently change the available choices.

Highly appreciated stock is one of the few planning problems where doing nothing can look tax-efficient for years. The tax remains deferred, the statement value may keep rising, and the absence of a transaction feels like prudence. But the family is still making an active choice: it is accepting one-company risk in exchange for preserving an embedded tax liability.

The right unwind does not have to be all at once, and it does not have to use only one tool. A thoughtful plan might donate the most appreciated shares, sell higher-basis lots, use a completion portfolio to harvest losses, and stage the remainder across two or three years. A founder with genuine charitable intent might use a CRT for one portion and sell another. An investor with a very long horizon might combine an exchange fund with a smaller immediate sale. What matters is that every component has a defined job, a measurable cost, and an endpoint.

The goal is not to win a contest for the smallest current-year tax return. It is to convert concentrated wealth into durable wealth without allowing taxes, fees, leverage, or complexity to become a larger risk than the stock itself.

All my best,

Brandon VanLandingham, CFA, CMT, CFP

Founder / CIO

Bunching Charitable Deductions With a Donor-Advised Fund

Charitable Bequests vs. Lifetime Giving: Tax Implications

Net Investment Income Tax (NIIT): What Triggers It and How to Plan

Reducing Capital Gains on a Highly Appreciated Portfolio

1. Internal Revenue Service, Revenue Procedure 2025-32, 2026 inflation-adjusted tax items, including capital-gain thresholds, annual gift exclusion, and federal basic exclusion amount. https://www.irs.gov/pub/irs-drop/rp-25-32.pdf

2. Internal Revenue Service, “Questions and Answers on the Net Investment Income Tax.” https://www.irs.gov/newsroom/questions-and-answers-on-the-net-investment-income-tax

3. Internal Revenue Service, Topic No. 409, “Capital Gains and Losses.” https://www.irs.gov/taxtopics/tc409

4. Internal Revenue Service, Publication 550, “Investment Income and Expenses,” including wash sales, short sales, and investment-interest rules. https://www.irs.gov/publications/p550

5. Internal Revenue Service, Publication 526, “Charitable Contributions,” including capital-gain property valuation, percentage limits, and carryforwards. https://www.irs.gov/publications/p526

6. Internal Revenue Service, Publication 505, “Tax Withholding and Estimated Tax,” 2026 changes to the itemized charitable deduction and limitation for taxpayers in the top bracket. https://www.irs.gov/publications/p505

7. Internal Revenue Service, “Charitable remainder trusts,” updated April 16, 2026. https://www.irs.gov/charities-non-profits/charitable-remainder-trusts

8. Internal Revenue Service, “Treasury, IRS issue final regulations naming certain charitable remainder annuity trust transactions as listed transactions,” July 8, 2026. https://www.irs.gov/newsroom/treasury-irs-issue-final-regulations-naming-certain-charitable-remainder-annuity-trust-transactions-as-listed-transactions

9. Fidelity Institutional, “Exchange Funds: An Important but Lesser-Known Tool for Wealth Management,” including seven-year holding, carryover basis, liquidity, and qualifying-asset considerations. https://institutional.fidelity.com/app/proxy/content?literatureURL=/9904554.PDF

10. Vanguard, “What Is Direct Indexing?” https://advisors.vanguard.com/investments/personalized-indexing/what-is-direct-indexing

11. BlackRock, “Diversifying a concentrated stock position with long-short strategies.” https://www.blackrock.com/us/financial-professionals/insights/diversify-with-long-short

12. AQR Capital Management, “Loss Harvesting or Gain Deferral? A Surprising Source of Tax Benefits of Tax-Aware Long-Short Strategies.” https://www.aqr.com/Insights/Research/Journal-Article/Loss-Harvesting-or-Gain-Deferral-A-Surprising-Source-of-Tax-Benefits-of-TaxAware-Long-Short-Strategies

13. Internal Revenue Service, Internal Revenue Bulletin 2004-8, constructive-sale guidance under Section 1259. https://www.irs.gov/irb/2004-08_IRB

14. AQR Capital Management, “A Brief Guide to Pricing and Taxation of Variable Prepaid Forwards.” https://www.aqr.com/-/media/AQR/Documents/Insights/Journal-Article/AQR-JWM-Spring25-ABriefGuidetoPricingandTaxationofVariablePrepaidForwards.pdf

15. Internal Revenue Service, Publication 551, “Basis of Assets,” including gifted and inherited property. https://www.irs.gov/publications/p551

16. Internal Revenue Service, Publication 537, “Installment Sales,” including the exclusion for publicly traded stocks and securities. https://www.irs.gov/publications/p537

17. Internal Revenue Service, Publication 550 and Schedule D instructions, qualified small business stock and Section 1042 rollover guidance. https://www.irs.gov/publications/p550 and https://www.irs.gov/instructions/i1040sd

18. Internal Revenue Service, Publication 575, “Pension and Annuity Income,” net unrealized appreciation rules for employer securities. https://www.irs.gov/publications/p575

19. Public Law 119-21, enacted July 4, 2025, provisions affecting qualified small business stock and the permanent opportunity-zone regime. https://www.congress.gov/119/plaws/publ21/PLAW-119publ21.pdf

20. Internal Revenue Service, “Opportunity Zones Frequently Asked Questions” and Internal Revenue Bulletin 2026-28. https://www.irs.gov/credits-deductions/opportunity-zones-frequently-asked-questions and https://www.irs.gov/irb/2026-28_irb

This memorandum is educational and provides a planning framework, not individualized tax, legal, securities, or investment advice. Tax results depend on the taxpayer’s complete facts, state law, transaction documents, holding periods, basis records, and future law. Charitable trusts, exchange funds, derivatives, long-short portfolios, securities-backed lending, qualified small business stock, net unrealized appreciation, ESOP sales, and Opportunity Zone investments require coordinated review by the appropriate tax, legal, and investment professionals before implementation.

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