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Selling a major asset can result in huge capital gains taxes, but combining direct indexing with tax-loss harvesting can significantly reduce your tax bill.
By
Danielle Meister, IAR, CFF®, CDFA®
published
21 February 2026
in Features
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Selling a business, investment property, appreciated stock or even your primary residence can leave you with a huge tax bill.
In 2026, federal long-term capital gains are taxed at 0%, 15% or 20% depending on your income, plus an extra 3.8% net investment income tax (NIIT) for high earners.
This means sellers of large assets could owe up to 23.8% federal tax on their gains. On top of that, state taxes apply.
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Sign upUtah, for example, taxes capital gains at the flat tax rate 4.55%. Washington state, which has no general income tax, recently introduced a 9.9% tax on large capital gains above $1 million. All told, you could owe 25% to 35% of your profit to taxes.
For instance, selling a business for $6 million could easily trigger $1.5 million to $2 million in combined federal and state taxes once these rates are applied.
Even selling a primary home has tax implications: Yes, there's a special $500,000 federal exclusion for married homeowners ($250,000 exclusion for a single person), but a gain beyond that would face hefty capital gains taxes.
About Adviser Intel
The author of this article is a participant in Kiplinger's Adviser Intel program, a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.
It's not uncommon to see significant gains well above the primary residence home exclusion in places like Washington, California, Oregon and Utah, where real estate prices have soared.
Fortunately, there are tax-smart strategies to help reduce or defer these taxes so you keep more of your money.
Direct indexing: Offsetting gains with losses
One strategy for those expecting a big gain — from a business, real estate or stock sale — is called direct indexing. Direct indexing means buying a basket of individual stocks of an index (for example, the S&P 500) in a separately managed account, rather than a single ETF or mutual fund.
Why do this? Because it lets you apply tax-loss harvesting in a more targeted way. With hundreds of stock positions, you are bound to have individual stocks increase and decrease in value from day to day.
When a stock goes down in value, we intentionally sell that loser. You heard that right — sell intentionally to create losses.
The strategy also navigates the 30-day wash-sale rule and aims to keep overall account performance returns on pace with the index it follows — in line with the S&P 500 performance, for example. The realized losses can then offset your capital gains dollar-for-dollar.
In simple terms, you're using stock market losses to cancel out the taxes on your big sale.
An example of how it works
Say you know you are going to sell your company, stock, a primary residence or investment real estate and will have a large gain. By harvesting, say, $100,000 of losses in a direct-indexed portfolio, you could wipe out $100,000 of taxable gains from the sale.
And if you get on this strategy early — say, a few years prior to the sale — you could accumulate more losses leading to the sale.
When done right, direct indexing can significantly reduce your tax bill. It's a way to be proactive about your taxes by using smart, active investment strategies. In short, harvesting losses via direct indexing turns the market's ups and downs to your tax advantage.
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Plan ahead and get advice
Selling a major asset doesn't have to result in a massive tax hit. By using direct indexing within your non-qualified investment accounts, you can aim to dramatically reduce taxes on your windfall.
Direct Indexing, along with other similar strategies (130/30 long-short equity strategy, for example) require careful advanced planning and minimum account balances.
It's wise to consult with a wealth adviser and CPA to execute these moves properly.
With the right approach, you can keep more of your hard-earned profit, potentially saving hundreds of thousands of dollars that would otherwise go to taxes.
That's money you can reinvest, save or use to enrich your life — truly a win-win for you and your financial future. You can reach out to Madrona Financial to learn more.
For over 30 years, Madrona Financial & CPAs has been helping individuals and families improve their wealth and financial well-being. Danielle Meister and the Madrona team, including nine wealth advisers and 13 CPAs, are available to meet clients locally, in Washington and Utah — or meet virtually with families and businesses across the United States.
Related Content
- Capital Gains: What's Taxable and How to Calculate It
- Capital Gains Tax Exclusion for Homeowners: What to Know
- 721 Exchange to Defer Taxes: Pros and Cons
- To Reap the Full Benefits of Tax-Loss Harvesting, Consider This Investment Strategist's Steps
- Technology Unleashes the Power of Year-Round Tax-Loss Harvesting
The information, suggestions, and recommendations included in this material is for informational purposes only and cannot be relied upon for any financial, legal or insurance purposes. Madrona Financial Services will not be held responsible for any detrimental reliance you place on this information. It is agreed that use of this information shall be on an "as is" basis and entirely at your own risk. Additionally, Madrona Financial Services cannot and does not guarantee the performance of any investment or insurance product. Insurance products are offered through Madrona Insurance Services, LLC, a licensed insurance agency and affiliate of Madrona Financial Services. Madrona Insurance Services and individual advisors affiliated with Madrona Insurance Services and Madrona Financial Services receives commissions on the sale of insurance products. Clients are not required to purchase insurance products recommended or to otherwise implement financial advice through Madrona affiliates. When we refer to preparation and filing of tax returns, tax returns are prepared and filed by our wholly-owned sister company Bauer Evans, Inc. P.S., a licensed certified public accounting firm. Madrona Financial Services, LLC is a registered investment adviser with the SEC. Our registration with the SEC or with any state securities authority does not imply a certain level of skill or training. Madrona Financial & CPAs is a registered trade name used singly and collectively for the affiliated entities Madrona Financial Services, LLC ("Madrona") and Bauer Evans, Inc., P.C. ("Bauer Evans"). Investment advisory services are provided through Madrona. CPA services are provided through Bauer Evans. While it's essential to optimize your tax situation, it's equally important to comply with tax laws and regulations. Always ensure that your tax-saving strategies are legal and appropriate for your financial situation.
DisclaimerThis article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
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Danielle Meister, IAR, CFF®, CDFA®Social Links NavigationWealth Adviser, Madrona Financial & CPAsDanielle Meister is a Senior Wealth Adviser at Madrona Financial and CPAs. She is an Investment Advisor Representative (IAR), Certified Financial Fiduciary®, Certified Divorce Financial Analyst® and holds a Series 65 and health/life insurance licenses. With clients located across the country, Danielle executes all aspects of financial planning: rollovers, investments, alternatives, structured products, insurance, retirement planning, Social Security, tax strategy, advanced gifting and legacy planning.
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