Allspring Global Investments has outlined tax-efficient methods investors can use to diversify concentrated stock positions without incurring large capital gains taxes. Holly Swan, Allspring’s Head of Wealth Solutions, categorized these strategies into three groups: avoid, defer, and offset taxes.
Avoiding Capital Gains Through Strategic Holding and Borrowing
One approach to avoid capital gains taxes is to hold highly appreciated assets until death to benefit from a step-up in basis. Investors may also borrow against portfolios to access cash without selling assets and triggering taxable events. Additionally, gifting appreciated stock to lower-income family members or employing options strategies to monetize or manage risk can help reduce tax exposure. Founders and early investors might also qualify for capital gains exclusions on qualified small business stock.
Deferring Tax Liability with Gradual Sales and Exchange Funds
Swan noted that deferral strategies include systematic diversification, where shareholders sell concentrated holdings incrementally to spread tax impacts. Tax loss harvesting can offset gains by using losses from other investments. Exchange funds enable investors to swap concentrated shares for diversified portfolios without immediate taxation. The article also highlighted opportunity zones, which from 2027 will allow reinvestment of capital gains into designated areas for up to five years of tax deferral and potential step-up in basis.
Offsetting Taxes with Charitable Giving
Charitable donations of appreciated securities held for more than one year can eliminate capital gains taxes while providing deductions for fair market value, subject to income limits. This offset technique helps investors reduce taxable gains while supporting philanthropic goals.
Allspring emphasized that while these tax-efficient diversification options can lower portfolio risk tied to concentrated holdings, investors should consult their own tax advisors, as Allspring does not provide legal or tax advice. The firm also warned that diversification does not guarantee better investment performance or eliminate investment losses.
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