How the Rich Aim to Reduce Their 2026 IRS Bills

A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide for wealthy investors and consumers. Register to receive future editions, straight to your inbox.

For seven years, wealthy Americans have faced a looming deadline to take advantage of tax provisions set to expire at the end of 2025. While the One Big Beautiful Bill Act eased much of the uncertainty by making most of the cuts permanent, tax lawyers and accountants say the ever-changing tax code requires constant planning.

With this year’s Tax Day now behind us, here are five of the most important planning strategies that wealthy investors and high-income earners are thinking about for next year and beyond.

Last year’s tax bill permanently increased the estate tax exemption to $15 million per person, from $13.99 million. (It was initially expected to be halved by the end of 2025.)

The higher threshold prompted a shift from minimizing federal estate taxes to reducing income and capital gains taxes. According to Mitchell Drossman, head of national wealth management strategies in Bank of America’s main investment office, minimizing capital gains has become crucial after several years of strong market gains. The S&P 500 has surged more than 75% since the start of 2023.

“To me, the biggest tax story is capital gains and investing,” Drossman said. “You have many customers who enjoy significant gains.”

Investors are increasingly turning to long-short tax-loss harvesting, an aggressive form of popular strategy, to minimize capital gains, Drossman said. With traditional tax-loss harvesting, investors sell losing assets to offset gains made in others. Long-short tax strategies, on the other hand, borrow from the portfolio to buy short positions that are likely to decline and maintain long positions that are likely to prosper.

“If there is natural volatility in the markets, you now have a larger asset base to choose from in terms of loss harvesting,” he said. “But when you look at your overall portfolio, you’re still pretty neutral.”

The 2025 tax bill renewed bonus depreciation, allowing businesses to deduct the full cost of eligible assets like machinery, computers or vehicles in the first year of their use.

Adam Ludman, head of tax strategy at JP Morgan Private Bank, said many clients with operating businesses invest with bonus amortization in mind, such as purchasing private jets.

According to Ludman, real estate developers and investors try to get the most bang for their buck by evaluating which parts of their properties can be depreciated more quickly. For example, while a commercial building can take 39 years to depreciate, a parking lot can be depreciated over 15 years, allowing owners to recover their costs more quickly.

A wave of blue states are considering new taxes on high earners and wealthy individuals to cover cuts in federal aid. California’s one-time billionaire tax proposal could make the November ballot, while Maine and Washington recently passed millionaire taxes.

Jane Ditelberg, chief tax strategist at Northern Trust Wealth Management, said a growing number of clients are wondering how to change their tax status as these proposals gain traction. Depending on their state, residents can avoid state-level taxes by creating trusts in states with favorable trust income laws, such as Delaware.

The easiest way to avoid council tax is to change your domicile, which is easier said than done, according to Jere Doyle of BNY Wealth. The Massachusetts-based senior estate planning strategist who imposes a tax on millionaires said he has clients who move to New Hampshire and establish residency before selling their businesses.

But customers are often reluctant to take the steps necessary to establish their intention not to return, Doyle said. For example, moving to Florida might not be enough to avoid Massachusetts taxes if you refuse to sell your Martha’s Vineyard home, he said.

“Everyone thinks that if you spend 183 days in another state, you’re domiciled in that state. That’s not necessarily true. Every state is a little different,” he said. “You [have] I need to change where you vote, where your car is registered, even where your doctors are, what clubs you belong to, golf clubs, country clubs, things like that. »

A notable drawback of last year’s tax bill was a reduction in the tax benefits of charitable giving for higher earners.

The bill limits top-earning donors in two ways. First, starting this year, donors who itemize their donations will only be able to deduct their charitable contributions that exceed 0.5% of their adjusted gross income, or AGI.

Second, taxpayers in the 37% tax bracket will have their itemized deductions reduced by 2/37 of the value. This cap reduces the effective tax benefit from 37% to 35%.

Ditelberg said many customers accelerated their charitable giving last year before these new rules took effect. She said she expects clients to continue to “bundle” their donations, giving a larger sum in one year rather than spreading it out over several years, so they only trigger the 0.5% discount once, either through their foundations or through donor-advised funds.

The tax bill also prompted business owners and property owners to postpone selling their assets. The bill made permanent the Qualified Opportunity Zone program, which allows investors to defer capital gains by rolling them into a fund that invests in a low-income community.

Opportunity zone funds created during the first Trump administration still exist, but you can only defer taxes until the end of the year. The new Opportunity Zones, which have yet to be designated, present increased benefits, particularly for investors in rural communities. For example, if you hold your investment in a qualified rural opportunity fund for five years, your capital gains are reduced by 30% for tax purposes.

But you only have 180 days to roll over your winnings, and the new Opportunity Zone rules won’t take effect until 2027, Ditelberg noted.

“If you’re thinking about making a big gain, you might want to delay it until August or September, instead of doing it in May or June, if you think you’d like to take advantage of the Opportunity Zone deferral,” she said. “I think we’re going to see people make gains in the second half of this year.”

That said, investors are waiting to see what the new funds will entail. Drossman said some clients are hesitant to invest in Opportunity Zones again after their previous investments underperformed.

“It’s a classic example of not letting taxes make things happen, because you have to make these investments wisely,” he said. “As with any investment, there is an element of risk and reward.”