Capital Gains Tax Strategy

Capital gains tax is the tax owed on the profit from selling an asset for more than you paid for it. Long-term capital gains, on assets held more than one year, are taxed at federal rates of 0%, 15%, or 20% depending on your income level. Most Weston Banks clients in Raleigh who are realizing significant gains fall in the 15% or 20% federal bracket. North Carolina taxes long-term capital gains as ordinary income at a flat rate of 4.75%. Higher-income taxpayers may also owe the net investment income tax of 3.8%. The combined rate for a high-income individual in North Carolina can approach 28% on a capital gain.

A 1031 exchange allows an investor to sell an investment property and defer the capital gains tax by reinvesting the proceeds into a like-kind property. The replacement property must be of equal or greater value, identified within 45 days of the sale, and closed within 180 days. The capital gains tax is deferred, not eliminated, until the replacement property is eventually sold without a subsequent exchange. 1031 exchanges apply to real estate held for investment or business purposes.

A Delaware Statutory Trust (DST) is a legal structure that holds institutional-grade real estate and allows multiple investors to own fractional interests. For capital gains planning, a DST qualifies as replacement property in a 1031 exchange. This is useful for investors who want to defer a capital gain but do not want the management responsibilities of direct property ownership. DST investments are passive, typically illiquid, and available only to accredited investors. Past performance does not guarantee future results.

A standard 1031 exchange applies to real property held for investment or business use, not to the sale of a business itself. However, if the business owns real estate as part of its assets, that real estate component may qualify for a 1031 exchange separately from the business sale transaction. The specific applicability depends on how the business is structured and the terms of the sale. We review this with your CPA and attorney early in the process.

A Qualified Opportunity Zone is a federally designated area intended to attract investment. Investing capital gains into a Qualified Opportunity Fund within 180 days of the gain event allows you to defer the original gain. If the Opportunity Zone investment is held for at least 10 years, any gains on the investment itself may be excluded from federal capital gains tax entirely. QOZ investments involve real estate or business development in designated areas and carry risks including illiquidity and development risk.

An installment sale is a structure where the buyer pays for a business or property over time rather than in a lump sum. The seller recognizes the gain in proportion to the payments received each year rather than all in the year of sale. This can keep the seller in a lower capital gains bracket each year. Installment sales make sense when the buyer is willing to structure payments over time and the gain is significant enough to push the seller into a higher bracket if recognized all at once.

The more lead time, the more options you have. For a 1031 exchange, the 45-day identification and 180-day closing deadlines are strict and require preparation. For Qualified Opportunity Zone investments, the 180-day investment window starts at the gain event date. For business sale strategies like installment sales, the structure typically needs to be in place before the letter of intent is signed. We recommend engaging a capital gains advisor at Weston Banks six to twelve months before the anticipated close.

Yes. Real estate investors in Raleigh and across North Carolina who have appreciated properties and are considering a sale are a significant part of the capital gains planning work we do. The Research Triangle real estate market has appreciated significantly over the past decade, meaning many investors are sitting on large embedded gains. We help them evaluate whether a 1031 exchange or DST makes sense.

Capital gains from a business or property sale are often the primary retirement funding event for business owners and real estate investors. How the proceeds are reinvested, how they are withdrawn during retirement, and how the tax from the sale event is managed all affect the retirement income plan. We build the capital gains strategy and the retirement income plan together rather than separately.

Book a free consultation through our website or call 919-783-8500. If you have a transaction on the horizon, bring the basic details: asset type, estimated sale price, your cost basis if known, and your anticipated timeline. The earlier you start, the more options we have to work with.