How to Defer Capital Gains Tax in 2026
Selling a highly appreciated asset can be financially rewarding but it often comes with a significant capital gains tax bill. For many investors and business owners, taxes represent the largest expense of the transaction, reducing net proceeds and limiting what comes next.
The good news is that there is a capital gains tax deferral strategy that allows you to delay when capital gains taxes are paid and, in some cases, improve long-term outcomes. With proper planning, you may be able to preserve more of your wealth by having the full pre-tax sale proceeds invested, generate steadyincome via promissory note repayments, and create flexibility after a sale.
What Is Capital Gains Tax?
Capital gains tax is assessed on the profit earned when an asset is sold for more than its purchase price. For tax purposes, the IRS considers most property to be a capital asset, including real estate, businesses, stocks, and investment portfolios.
When an appreciated asset is sold, the gain must be reported as income unless a qualifying deferral strategy is in place.
IRS reference: https://www.irs.gov/taxtopics/tc409
Short-Term vs. Long-Term Capital Gains
How long you own an asset before selling plays a major role in how much tax you owe.
Short-Term Capital Gains
Assets Held One Year or Less
Short-term capital gains apply to assets sold within one year of purchase. These gains are taxed at ordinary income tax rates, which may be significantly higher for high-income earners.
Long-Term Capital Gains
Assets Held Longer Than One Year
Long-term capital gains are taxed at preferential rates generally 0%, 15%, or 20%, depending on income. Certain assets, such as collectibles or specific small business stock, may be taxed at higher rates.
Why Capital Gains Planning Matters in 2026
As we move further into 2026, capital gains planning has become increasingly important. Several provisions of the 2017 Tax Cuts and Jobs Act (TCJA) have sunset or are under review, creating uncertainty around future tax rates and thresholds.
For individuals considering the sale of a business, real estate, or other appreciated assets, planning before the sale occurs can significantly impact after-tax results.
How Can Capital Gains Tax Be Deferred?
Capital gains tax deferral allows sellers to postpone recognizing taxable gains rather than paying all capital gains taxes in the year of sale. The strategy used depends largely on the type of asset being sold.
While real estate investors have access to asset-specific tools, one solution, the Deferred Sales Trust (DST), can be used for a wide array of appreciated assets.
Capital Gains Deferral Strategies for Real Estate
1031 Exchange
A 1031 exchange allows real estate investors to defer capital gains taxes by reinvesting sale proceeds into another like-kind property.
Key 1031 Exchange Requirements
- Replacement property must be identified within 45 days
- The purchase must be completed within 180 days
- Funds must be handled by a qualified intermediary
While effective, 1031 exchanges are restrictive and require continued ownership of real estate. Taxes are deferred, not eliminated, and are typically due when the replacement property is sold.
Qualified Opportunity Zone (QOZ) Investments
Qualified Opportunity Zone investments allow capital gains to be reinvested into designated economic development areas through a Qualified Opportunity Fund (QOF).
QOZ Investment Rules
- Investment must occur within 180 days
- Must be an equity investment, not debt
- Gains are deferred only through 2026 under current law
IRS guidance: https://www.irs.gov/credits-deductions/businesses/opportunity-zones
A Flexible Alternative for Any Asset – The Deferred Sales Trust
A Deferred Sales Trust (DST) is a structured installment sale strategy that allows sellers to defer capital gains taxes across a wide array of asset classes, including:
- Real estate
- Privately held businesses
- Investment portfolios
- Cryptocurrency
- Highly appreciated personalassets
A DST can also serve as a strategic alternativetoa 1031 exchange.
How a Deferred Sales Trust Works
Key Features of a Deferred Sales Trust
- The asset is transferred into the trust before the sale
- Sale proceeds are paid directly into the trust
- The seller receives installment payments over time
- Capital gains tax is recognized only as payments are received
This structure allows for customized income planning and long-term tax efficiency.
Why Work With Reef Point?
Reef Point focuses exclusively on Deferred Sales Trust strategies. We work alongside your existing advisors to help structure compliant, properly implemented solutions designed to align with your financial goals.
Frequently Asked Questions About Capital Gains Deferral
Can capital gains tax be deferred legally?
Yes. The IRS allows capital gains tax deferral through strategies such as 1031 exchanges, Qualified Opportunity Zone investments, and Deferred Sales Trusts—when implemented before a sale occurs.
What assets qualify for a Deferred Sales Trust?
Deferred Sales Trusts may be used for real estate, businesses, investment portfolios, cryptocurrency, and other appreciated assets.
How is a Deferred Sales Trust different from a 1031 exchange?
A 1031 exchange is limited to real estate and requires reinvestment into like-kind property. A DST offers greater flexibility, broader asset eligibility, and negotiable income timing via promissory note repayments.
When must a Deferred Sales Trust be established?
A Deferred Sales Trust must be created before the sale closes. Once a transaction is complete, capital gains tax has already been triggered.
Suggested Blogs:
What is a Deferred Sales Trust https://reefpointusa.com/dst-explained/
Contact Reef Point LLC for a free consultation. Our team specializes in Deferred Sales Trust implementation, helping business owners and investors reduce capital gains exposure.