The math is clear: for most wealthy families in 2026,capital gains tax will extract more wealth than estate tax. With federal rates reaching 23.8% on capital gains and estate exemptions at $15 million per person, the real threat isn't the estate tax anymore.
Key Takeaways
- Capital gains rates hit 23.8%for high earners (20% LTCG + 3.8% NIIT under IRC §1411)
- Estate exemption is $15 million per person($30 million per couple) in 2026, made permanent by the OBBBA
- Step-up in basis under IRC §1014still resets cost basis at death, so holding often beats selling for low-basis assets
- Realization timingmatters more than estate planning for most families under $30M of net worth
- Planning the sale event, not just the death event, is the bigger lever in 2026
The Capital Gains Reality
In 2026,capital gains tax rates remain at 0%, 15%, and 20%based on income thresholds. For married couples filing jointly, the 20% rate kicks in at $613,700 of income, up from $600,050 in 2025.
But here's the catch: theNet Investment Income Tax (NIIT) adds 3.8%on top for high earners. Under IRC §1411, single filers with modified AGI above $200,000 and married filers above $250,000 face this additional tax. The threshold has not been indexed for inflation since 2013, so more families cross it every year. This creates an*effective federal rate of 23.8%*on long-term capital gains for wealthy taxpayers.
Add state taxes in many jurisdictions, and the total can exceed 30%.
Estate Tax: Less Scary Than You Think
The federal estate tax exemption sits at*$15 million per individual ($30 million per married couple)*in 2026. This means most business owners won't face estate tax at all.
Even for those who do, proper planning can often reduce or eliminate the burden through valuation discounts, gifting strategies, and trust structures.
Why Lifetime Sales Hurt More Than Death-Time Transfers
Here is the part most planners skim over. UnderIRC §1014, assets included in your estate at death get a step-up in basis to fair market value. Your heirs can sell those assets the next day with little or no capital gains tax owed on the appreciation that happened during your lifetime.
If you sell the same asset the day before you die, you pay the full 23.8% federal rate on every dollar of appreciation. The estate exemption protects $15 million from estate tax. Step-up protects every dollar of unrealized appreciation from income tax, with no cap. For families with concentrated low-basis assets, that second shield is often the bigger one. See alsowhy portability is not an estate plan on its own.
This changes how you think about gifting too. Giving away low-basis stock during your lifetime can lock in a higher future tax bill for your heirs than holding the same asset and letting them inherit it at stepped-up basis. The math depends on your projected appreciation, your heirs' tax brackets, and what else is in your estate.
The Planning Opportunity
Smart families are shifting their focus from estate tax planning to*capital gains management*. Here are the key strategies:
Installment Sales
Spread the gain over multiple years to stay in lower tax brackets and potentially avoid NIIT thresholds.
Charitable Remainder Trusts
Defer capital gains while generating income and creating charitable deductions.
Opportunity Zone Investments
Defer and potentially reduce capital gains through qualified investments.
Gifting Appreciated Assets
Transfer future appreciation to the next generation while using your $15 million exemption.
Why This Matters Now
The OBBBA made the $15 million per person estate exemption permanent. For most families under $30 million of net worth, the federal estate tax is no longer the binding constraint. Capital gains, NIIT, and the choice of when and whether to realize a gain now do more of the work. For background, seethe OBBBA tax changes most advisors haven't explained.
Families who plan only for estate tax miss the bigger picture. The families who do well in 2026 will be the ones who recognize this shift early and coordinate gifting, holding, and the realization event together. For founders with concentrated stock, that often starts withthe QSBS exclusion most founders under-usewell before any sale.
Frequently Asked Questions
What is the capital gains tax rate for wealthy families in 2026?The federal rate is 23.8% for high earners (20% capital gains rate plus 3.8% Net Investment Income Tax). State taxes may add another 5-13% depending on your location.How much is the estate tax exemption in 2026?The federal estate tax exemption is $15 million per individual and $30 million per married couple in 2026, permanently set by recent legislation.Why are capital gains more concerning than estate tax now?With the high estate exemption, most families won't pay estate tax. But capital gains hit at 23.8% federal rate on any sale during your lifetime, affecting far more families.Can I avoid capital gains tax by holding until death?Yes, assets receive a "step-up in basis" at death, eliminating capital gains tax. However, this requires holding the asset until death and may not align with your financial or business goals.What planning strategies help reduce capital gains tax?Key strategies include installment sales, charitable remainder trusts, opportunity zone investments, and gifting appreciated assets. The best approach depends on your specific situation and timeline.
Work with Pinnacle Wealth Advisory
If you're facing a potential capital gains event or want to optimize your wealth transfer strategy, it might be worth a conversation. We help business owners and wealthy families navigate these complex tax situations with strategies tailored to their specific circumstances.Learn more about our approach.
This blog post is for informational purposes only and does not constitute legal, tax, or financial advice. Past performance does not guarantee future results. Consult with qualified professionals for guidance tailored to your specific situation. Results vary based on individual circumstances. Specific figures are illustrative, not guarantees of outcomes. Doug Greenberg is an investment adviser representative of SB Advisory LLC, a registered investment adviser. Doug may provide services and conduct business as Pinnacle Wealth Advisory with advisory services offered through SB Advisory, LLC.
