A Newly Retired Couple With a Portfolio Full of Winners Faced a $50,000 Tax Bill: This Is the Strategy That Helped Save Them

The richest households in America are sitting on $21 trillion in unrealized capital gains — profits on investments that haven't been sold and aren't taxed yet.

Nearly half of those gains are held by the top 1%. But this isn't just a super-wealthy problem. If you've been in the market for a long time and your portfolio has grown nicely, those paper gains can quickly turn into a very real tax problem the moment you need to sell.

That's exactly what happened to Linda and Marco, who did everything right.

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They saved consistently, invested patiently, and stayed the course through market ups and downs. Now in their late 60s and newly retired, their portfolio was worth more than they ever imagined.

There was just one problem. Almost everything they owned had a big gain attached to it.

When they sat down to plan withdrawals for retirement spending and a long-planned home renovation, the math was sobering.

Selling about $300,000 of investments would trigger capital gains taxes approaching $50,000. And because markets had risen steadily for years, traditional tax-loss harvesting — the strategy of selling losing investments to offset gains — barely made a dent.

"We felt stuck," Linda told me. "We had plenty of money, but touching it felt expensive."

Their situation is far more common than most investors realize, especially heading into tax season. It's also a pattern that Brett Spencer sees frequently.

As a tax-planning specialist and fiduciary adviser in the Wealthramp network, Spencer works with investors who look successful on paper but feel constrained when taxes dictate how — and when — they can actually use their money.

When investment success creates a tax problem

Capital gains taxes are the price of investment success. The longer you hold investments and the better they perform, the bigger the tax bill when you sell.

For many long-term investors, especially retirees, that creates a painful tradeoff: Sell investments and pay a large tax bill, or hold on longer than you want and delay using your money.

Traditional tax-loss harvesting helps early on, when portfolios still have plenty of losing positions to sell. But over time, that tool loses power. After a decade of strong markets, many portfolios simply don't have enough losses left.

That's when some advisers turn to a more advanced approach known as a tax-aware long-short strategy, often just called TALS.

What is a TALS strategy?

At its core, a TALS strategy is designed to create tax losses intentionally, even when markets are rising.

Think of it as an extension of tax-loss harvesting for investors who have already "used up" the easy losses.

Instead of waiting for markets to fall, the strategy is structured so that something in the portfolio is likely to lose value in most market environments — and those losses can be harvested to offset gains elsewhere.

The goal is not speculation or market timing. It's disciplined tax management.

How TALS worked for Linda and Marco

Linda and Marco's adviser didn't sell their existing investments right away. Those stayed in place.

Instead, using modest borrowing inside the account, the adviser added a long-short layer — buying stocks or ETFs expected to perform well and shorting closely related ones expected to lag.

Because the long and short positions were highly related, often within the same sector, they tended to move together.

When markets rose, the long positions generally gained while the short positions lost value, creating tax losses. When markets fell, the long positions lost value while the short positions gained. Either way, losses were generated.

Over the course of the year, Linda and Marco's portfolio still grew modestly. More importantly, it produced more than $60,000 in usable tax losses.

Those losses allowed them to sell appreciated investments to fund their plans while largely offsetting the capital gains taxes. The key benefit is timing, not permanent tax elimination.

"It didn't feel like a loophole," Marco said. "It felt like finally using the tax code the way it was written."

When this strategy can make sense

A TALS approach is not a first-line tax strategy. It's typically considered when investors face one or more of the following situations:

• Large unrealized gains in taxable accounts
• Concentrated stock positions they want to reduce
• Retirement withdrawals that would trigger significant taxes
• Selling a business or major asset
• Large crypto gains
• Selling real estate with depreciation recapture
• One-time expenses that require liquidating investments

In short, the strategy is most useful when taxes — rather than market exposure — become the primary planning obstacle.

What this strategy doesn't do

A TALS strategy does not eliminate taxes permanently — it helps shift when and how taxes are paid.

While the long-short structure can reduce broad market exposure, market risk still exists, so the strategy requires careful management.

And because of its complexity, this is typically not a do-it-yourself move and is generally implemented in collaboration with a highly qualified fee-only adviser.

The 'exit tax' investors need to understand

One important nuance investors should understand upfront is what some advisers refer to as exit tax or liquidation risk.

A TALS strategy works by deferring gains while steadily harvesting losses. Over time, the strategy itself can build up significant unrealized gains. Those gains don't disappear — they are deferred.

If an individual investor later decides to unwind the strategy, switch managers or liquidate to raise cash, those built-in gains may be taxed all at once.

The key benefit is timing, not permanent tax elimination.

Adviser research, including work frequently cited by firms such as AQR, a leading quantitative asset manager, shows that even in worst-case full liquidation scenarios, investors often still come out ahead on an after-tax basis compared with paying large capital gains taxes upfront.

According to Spencer, the strategy works best when investors understand both sides of the equation. "You want to know how the strategy helps you today," he says, "and how it may unwind later — so there are no surprises."

The key risks to weigh first

Like any strategy that involves borrowing, TALS comes with real risks. Leverage can amplify losses. Borrowing costs matter. Tax laws can change, and the IRS scrutinizes aggressive harvesting strategies.

Improper implementation can backfire, and ongoing oversight is essential.

This is why the approach is generally reserved for higher-net-worth investors working with experienced fiduciary advisers. For many investors, simpler strategies — such as spreading sales over multiple tax years or using charitable giving — may still be the better answer.

Why this matters this tax season

Tax season focuses attention on what investors already owe. The bigger opportunity often lies in planning ahead, especially for those sitting on large gains.

Linda and Marco didn't discover this strategy because they were chasing clever tricks. They found it because they asked a better question: "Is there a smarter way to use our money — without letting taxes make all the decisions?"

For the right investors, a tax-aware long-short strategy can be one of several tools that help answer that question.

The takeaway is straightforward: Taxes are one of the largest expenses investors face — and they deserve the same thoughtful planning as investments themselves.

Selling big winners doesn't always have to come with a big tax bill. But it does require the right guidance, the right timing and the right expectations.

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