Personal Finance
7 Costly Capital Gains Tax Mistakes Seniors Should Avoid
Capital gains tax may eat into investment gains and quietly erode your wealth.
If you’re a retiree who has built a portfolio worth $1 million or more, tax efficiency is likely top of mind for you.
You may also be surprised to learn there’s no longer a special capital gains exemption just for seniors.
The good news? There are still smart strategies you may be able to use to minimize—or even potentially avoid—capital gains taxes.
Consulting a fiduciary financial advisor can be a great first step to weave these tactics into a broader retirement-tax strategy.
SmartAsset’s latest proprietary model reveals that working with a financial advisor could potentially add from 36% to 212% more dollar value to investors’ portfolios over a lifetime, depending on multiple unique, individual factors.¹ So choosing an advisor that aligns with your financial goals can be crucial.
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Keep scrolling for seven overlooked capital gains tax strategies that could potentially help you preserve more of your wealth.
1. There’s No Senior Exemption—But Timing Is Everything
Capital gains taxes don’t disappear after 65. Short-term gains are taxed at ordinary income rates (up to 37%), while long-term gains get preferential rates (0%, 15%, or 20%).² If you’re retired—or in a lower-income year—you may qualify for a lower bracket.
Strategic timing could potentially result in a six-figure difference.
2. Exclude Up to $500K in Gains from a Home Sale
Downsizing or relocating? If you’ve lived in your primary residence for at least two of the past five years, you may qualify to exclude up to $500,000 in capital gains if married ($250,000 if single).³ No age requirement—just smart planning.
3. Time Your Sales Around Income Valleys
The early retirement window (often before RMDs or Social Security kicks in) could potentially be a sweet spot for realizing long-term gains at low or possibly even 0% tax rates. Coordinating withdrawals and asset sales around your income profile may be essential.
This is another area where working with a financial advisor may be crucial. Click here to use our free financial advisor matching tool.
4. Use IRA Charitable Distributions to Reduce Taxable Income
If you’re over 70½, Qualified Charitable Distributions (QCDs) allow you to give directly from your IRA—reducing taxable income without itemizing. For high-income retirees, this may help keep Medicare premiums and capital gains brackets in check.
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5. Harvest Losses to Offset Future Gains
Selling underperforming assets to offset gains may help reduce your current year tax bill. Any excess losses can be carried forward to future years—giving you flexibility without sacrificing your investment strategy.
6. Be Strategic About Where Assets Are Held
Tax-deferred accounts, Roth IRAs, and brokerage accounts all have different tax treatments. A tax-smart advisor may be able to help you place income-producing, growth, or dividend-heavy assets in the right buckets to minimize lifetime taxes.
7. Preserve Appreciated Assets for a Step-Up in Basis
When you pass appreciated investments to heirs, they typically receive a “step-up” in cost basis—meaning capital gains taxes could potentially be erased entirely. Holding onto highly appreciated assets can be a powerful estate-planning strategy.
Why Guidance May Matter More at This Stage
Coordinating gains, losses, income, charitable giving, and estate strategy requires more than general advice. A fiduciary financial advisor can build a personalized plan that accounts for:
- Medicare thresholds
- Tax bracket transitions
- Roth conversion windows
- Multi-generational wealth transfer
- And more
How to Get Help Designing Personalized Capital Gains Tax Strategy
Whether your priority is minimizing taxes, preserving wealth, or planning your estate—getting trusted advice now could potentially save you more later.
Consulting a fiduciary financial advisor could help you determine a unique plan that factors your assets and taxes into your overall retirement and estate-planning goals. Fiduciaries are obligated by law to act in your best interest and any potential conflicts of interest must be disclosed.
The tool starts with this quiz that takes just a few minutes, and in many cases, you can be connected instantly with an advisor to have an introductory call.
This is a hypothetical example and is not representative of any specific security. Actual results when working with a financial advisor will vary.
This scenario is for illustrative purposes only and does not represent an actual client. Results may vary.
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SmartAsset.com is not intended to provide legal advice, tax advice, accounting advice or financial advice (Other than referring users to third party advisers registered or chartered as fiduciaries ("Adviser(s)") with a regulatory body in the United States). The article and opinions in this publication are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you consult your accountant, tax, or legal advisor with regard to your individual situation.
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Sources:
1. “The Value of a Financial Advisor: What’s It Really Worth?” SmartAsset (Nov. 2024)
2. “Capital Gains Tax: Definition, Rates & Calculation” SmartAsset (May 2025)
3. “Topic no. 701, Sale of your home” Internal Revenue Service (June 2025)
