Timing Asset Sales: Avoiding Bracket Creep

For investors with portfolios above $1 million, every asset sale has tax consequences—and poor timing can move you into a higher bracket, costing tens of thousands more in taxes. Bracket creep—when a large gain quietly nudges you into a new bracket and exposes you to extra taxes like the 3.8% Net Investment Income Tax (NIIT)—is a real concern for high-net-worth households.

Careful timing and proactive planning can make a huge difference. Here’s how to avoid bracket creep and keep more of your returns working for you.

Understanding Bracket Creep and Asset Sales

Bracket creep happens when the gains from an asset sale boost your taxable income, pushing you into a higher bracket. For 2025, federal tax brackets for married couples filing jointly range from 24% (for $100,526–$201,050 of taxable income), to 32% ($201,051–$383,900), to 35% ($383,901–$487,450), and 37% ($487,451 and up). The long-term capital gains rate jumps from 15% to 20% at $553,850, and the NIIT kicks in at $250,000 of adjusted gross income.

Research from Fidelity shows that poor timing can raise your tax bill by 10–20% for every $1 million in gains. State taxes can make the impact even worse. The key is to manage the timing and amount of your asset sales to keep your income under critical thresholds and reduce your overall tax burden.

Case Study: The $10 Million Real Estate Exit

Sarah, age 60, was planning to sell a $10 million commercial property in 2023. Her first advisor recommended selling everything in a single year, which would have created $2 million in long-term capital gains and pushed her adjusted gross income (AGI) to $2.5 million. This landed her in the 37% income tax bracket, the 20% capital gains bracket, the NIIT, and Florida’s 6% tax, leading to a $680,000 tax bill.

Instead, she chose a staggered sale, selling $3.3 million per year over three years. This approach kept her AGI below $553,850 each year, capped her capital gains rate at 15%, and avoided the NIIT. The total tax was $390,000—a $290,000 savings. The proceeds were then reinvested into municipal bonds for ongoing, tax-free income.

Five Practical Tactics to Time Asset Sales

To minimize taxes and avoid bracket creep, consider these strategies when planning large sales:

1. Stagger Large Sales: Spread big transactions (like real estate or business exits) over several years to keep your AGI below major tax thresholds.
2. Harvest Losses Simultaneously: Sell losing positions in the same year to offset gains, reducing your tax bill. Many robo-advisors can automate this process.
3. Track Your AGI Annually: Use tax software or work with a CPA to project your AGI before any sale. Plan the sale to stay under NIIT ($250,000) or the 32% bracket ($383,900).
4. Sell During Low-Income Years: Take advantage of years when your income is lower (such as before required minimum distributions or after business exits) to realize gains at a lower tax rate.
5. Pair Sales with Large Deductions: Time sales for years when you have significant deductions, like medical expenses or charitable giving. Qualified charitable distributions from IRAs can also help offset taxable income.

Practical Tips for High-Net-Worth Investors

• Monitor Your AGI: Regularly check your income and realized gains using tools like Personal Capital or your brokerage portal to avoid surprises.
• Test with Scenarios: Run what-if scenarios—using software or with your advisor—to see how timing and market swings could impact your taxes.
• Control Which Lots You Sell: Use “specific identification” at your broker to choose which shares or lots to sell, helping you manage cost basis and taxes.
• Work with Tax Pros: A CPA can help align asset sales with deductions and stay up to date with changing tax law.
• Reinvest Tax-Efficiently: Consider putting proceeds into municipal bonds or dividend stocks for ongoing, tax-advantaged growth.

Challenges and Considerations

Selling at the optimal time is not always possible. Market downturns can force asset sales at bad prices, or sudden expenses—like healthcare—might push your income higher. Be aware of wash-sale rules, which block you from claiming a loss if you repurchase a “substantially identical” asset within 30 days. Required IRA withdrawals can also increase your taxable income, and state taxes add further complexity. Behavioral traps, like letting fear or greed dictate timing, can be costly. The best defense is a disciplined plan and regular check-ins with your advisor and tax professional.

Conclusion

Bracket creep can quietly erode even well-built portfolios, but thoughtful timing and smart planning can protect hundreds of thousands—or even millions—over time. Sarah’s $290,000 tax savings show the power of staggered sales and keeping an eye on AGI.

By spreading out big gains, harvesting losses, and pairing sales with deductions, you maximize what you keep. Don’t let avoidable taxes chip away at your hard-earned wealth. Consider working with a fiduciary advisor and tax pro to design a sale strategy that works for your goals.

Sources

1. Fidelity Investments. (2024). Retiree Health Care Cost Estimate. https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/press-release/2024-retiree-healthcare-costs-05012024.pdf
2. IRS. (2025). Tax Brackets and NIIT Thresholds. https://www.irs.gov/publications/p550
3. CBRE. (2023). 2022 U.S. Real Estate Market Outlook. https://www.cbre.com/insights/reports/us-market-outlook-2023
4. Schwab. (2024). Capital Gains Tax Strategies for High-Net-Worth Investors. https://www.schwab.com/learn/story/capital-gains-tax-strategies