3 strategies to defer capital gains tax on stocks

Paying capital gains tax the moment you sell appreciated stock isn't the only option. A set of established strategies can push that tax out, in some cases for years, while still leaving the door open to sell down the road.

Three main routes exist for deferring capital gains tax on stock: contribute shares to an exchange fund, roll sale proceeds into a Qualified Opportunity Fund, or structure an installment sale spread across several years. Each operates differently, and none makes the tax vanish, but all three buy time under the right circumstances.

Contribute to an exchange fund

An exchange fund gathers appreciated stock from many investors into a single diversified pool, giving each contributor a stake in that pool instead of cash. Because it's an exchange of shares rather than a sale, no taxable event is triggered under Section 721 of the tax code.

The tax owed gets deferred, not erased, until the position is redeemed after the required holding period. Whatever's received back carries the original cost basis forward. Glidepath is one such fund: eligibility requires accredited investor status and a $100,000 minimum, and there's no management fee.

Among the options here, an exchange fund is the one designed specifically for someone sitting on a large, appreciated, concentrated position who wants full diversification without selling now.

See if you’re eligible to diversify and defer with Glidepath.

Reinvest through a Qualified Opportunity Fund

Capital gains can also be deferred by putting the realized gain, within a defined window after the sale, into a Qualified Opportunity Fund. These vehicles invest in designated Opportunity Zones, and the length of the deferral depends on how long the money stays invested.

This path is narrower than an exchange fund. The original stock has to be sold first, triggering a normal taxable sale, before the proceeds get redirected. What results is capital tied to a specific set of Opportunity Zone investments, not a diversified portfolio.

Spread the sale out with an installment sale

Rather than selling everything in one shot, an installment sale breaks the sale and its gain into pieces across multiple years. Tax still eventually applies to the full gain, but spreading recognition out can keep any single year's income out of a higher bracket, compared with realizing it all at once.

What doesn't actually defer the tax

Two other strategies often get lumped into this conversation, but they work differently, and the distinction matters. Tax-loss harvesting offsets gains using losses elsewhere in a portfolio. That reduces or wipes out the tax bill, but it's an offset, not a deferral, and it only works if losses are actually on hand to harvest.

Giving appreciated shares to a donor-advised fund sidesteps tax on those shares entirely and comes with a charitable deduction, but the shares themselves are gone for good. Neither approach defers a bill the way an exchange fund, a Qualified Opportunity Fund, or an installment sale does.

Comparing your deferral options

Here's how the three genuine deferral strategies compare:

Which path fits depends on the size of the position, the amount of diversification wanted, and how comfortable each strategy's tradeoffs feel.

Get started to see if an exchange fund is right for you.