As estate and tax planning moves into 2026, capital gains taxes are becoming just as important as estate taxes for many families. Even when an estate falls below federal estate tax thresholds, poor capital gains planning can result in significant and avoidable tax costs for heirs.
For high net worth families, capital gains planning in 2026 requires careful attention to asset location, timing of sales, and how assets are transferred at death. Decisions made years earlier can have lasting tax consequences.
Why Capital Gains Planning Matters More in 2026
Capital gains tax applies when an asset is sold for more than its tax basis. For long held assets such as real estate, stocks, and business interests, the gain can be substantial.
In 2026, many families are reassessing capital gains exposure because:
- Asset values have increased significantly over time
- Federal and state tax systems treat gains differently
- Estate tax planning alone may not reduce income tax exposure
- New York income taxes apply on top of federal taxes
Capital gains planning focuses on minimizing the tax burden when assets are eventually sold.
Understanding Basis and the Step Up at Death
One of the most important concepts in capital gains planning is tax basis.
When a person purchases an asset, their basis is generally the purchase price plus certain adjustments. Capital gains tax is calculated based on the difference between the sale price and that basis.
Under current law, most assets inherited at death receive a step up in basis to their fair market value as of the date of death. This can eliminate capital gains entirely if heirs sell shortly after inheriting the asset.
For many families, preserving the step up in basis is a critical planning goal.
Asset Location and Why It Matters
Asset location refers to how assets are titled and where they are held. This can directly affect whether the step up in basis applies.
Assets held:
- Individually
- In revocable trusts
- In certain irrevocable trusts
may receive different tax treatment depending on structure.
Improper asset placement can unintentionally eliminate the step up in basis and create capital gains exposure for heirs. This is especially relevant when trusts were created years ago under different tax assumptions.
Timing of Asset Sales
Timing plays a major role in capital gains outcomes.
Families often face decisions such as:
- Whether to sell assets during life or hold until death
- Whether to rebalance investment portfolios
- Whether to liquidate inherited assets immediately or over time
Selling assets during life can trigger capital gains taxes that might have been avoided if the asset were held until death and passed to heirs.
However, holding assets indefinitely may not always be practical, especially if liquidity is needed or risk exposure is too high.
Capital Gains Versus Estate Tax Tradeoffs
In 2026, many families fall below federal estate tax thresholds but still face significant capital gains exposure.
This creates a common planning tension:
- Gifting assets during life may reduce estate size but preserve low basis
- Retaining assets until death may preserve the step up but increase estate value
The right answer depends on asset type, appreciation potential, and family goals.
There is no one size fits all solution.
New York Income Tax Considerations
New York does not impose a capital gains tax separate from its income tax. Capital gains are taxed as ordinary income for New York purposes.
For New York residents, this means:
- Capital gains can be taxed at both federal and state levels
- The combined tax burden can be significant
- Planning must account for state level impact, not just federal rules
This makes asset sale timing and inheritance planning especially important for New York families.
Capital Gains Planning for Real Estate
Real estate is often the largest source of unrealized capital gains.
Issues to consider include:
- Long held properties with low basis
- Rental property depreciation recapture
- Vacation homes and secondary residences
- Family owned real estate passed across generations
Selling real estate during life can trigger large tax bills, while transferring property at death may eliminate gains through a step up in basis.
Trust ownership and prior transfers must be reviewed carefully.
Business Interests and Concentrated Assets
Closely held businesses and concentrated stock positions present unique challenges.
Valuation, liquidity, and timing all matter. A poorly timed sale or transfer can result in unnecessary capital gains or missed planning opportunities.
For business owners, coordinating succession planning with capital gains considerations is essential in 2026.
How Recordkeeping Affects Capital Gains Outcomes
Accurate recordkeeping becomes increasingly important in capital gains planning for 2026. Many families hold assets that were acquired decades ago, often without clear documentation of purchase price, improvements, or prior transfers. When basis records are missing or incomplete, heirs may be forced to assume a lower basis, resulting in higher taxable gains upon sale.
Trustees and executors should make it a priority to gather deeds, purchase statements, brokerage records, and documentation of capital improvements. Maintaining organized records now can significantly reduce tax exposure later and prevent disputes with tax authorities or among beneficiaries.
Common Capital Gains Planning Mistakes
Families often make avoidable mistakes, including:
- Making large gifts without considering basis consequences
- Selling appreciated assets unnecessarily late in life
- Using outdated trust structures that block step up benefits
- Ignoring state income tax exposure
- Failing to coordinate estate and income tax planning
These mistakes can permanently increase the tax burden on heirs.
Planning Strategies to Review in 2026
High net worth families often review:
- Asset titling and trust ownership
- Basis documentation and recordkeeping
- Gifting strategies versus retention strategies
- Real estate holding structures
- Coordination between estate, trust, and tax advisors
The goal is not to eliminate taxes entirely, but to reduce unnecessary tax costs.
Speak to an Attorney
Capital gains planning in 2026 requires careful coordination with estate planning, trust design, and New York tax considerations. The Law Offices of Juliet Cohen, P.C. advises New York families on asset structuring, inheritance planning, and strategies to reduce capital gains exposure for future generations. If you hold highly appreciated assets or are revisiting your estate plan for 2026, experienced legal guidance can help you evaluate timing, structure, and long term tax impact with clarity.
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