Strategies for Dealing with Low-Cost Basis Stock Positions

Sep 15

Reviewed by: Tim Raftis CFP®

Strategies for Dealing with Low-Cost Basis Stock Positions

Table of Contents

• Selling Gradually
• Donating to Charity
• Gifting to Family
• Establishing a Charitable Remainder Trust (CRT)
• Hedging with Options
• Holding for a Step-Up in Basis
• Using Losses to Offset Gains
• Blending Strategies

Many investors face the same dilemma: “I bought stock years ago for very little, and now it’s worth a lot. What should I do?” Owning low cost basis stock can be a blessing and a curse. On one hand, you’ve enjoyed tremendous growth. On the other hand, selling outright could mean a hefty tax bill, and holding everything in one company can create risk. Here are some of the main strategies for handling low-cost basis stock so you can help protect your wealth, manage taxes, and align your investments with your goals.

Selling Gradually

Instead of selling everything at once, consider spreading sales over several years. Helps you stay in lower tax bracketsReduces concentration risk over timeLets you reinvest steadily into a diversified portfolio Think of it as taking chips off the table little by little.

Donating to Charity

Donating stock directly to a qualified charity (or to a donor-advised fund) is one of the most tax-smart moves: You avoid paying capital gains taxesYou receive a deduction for the full market valueYou support causes that matter to you This is often better than writing a check.

Gifting to Family

You can also gift stock to children or grandchildren, using the annual gift tax exclusion ($19,000 per person in 20251). The person you gift to inherits your cost basis, which means they may face the tax bill if they sell—but if they’re in a lower bracket, it could still make sense.

Establishing a Charitable Remainder Trust (CRT)

A CRT allows you to contribute stock, have the trust sell it tax-free, and receive an income stream for life. At the end, the remainder goes to charity. It’s best for those who want both income and a legacy of giving, but it’s an advanced, irrevocable strategy that requires careful planning.

Hedging with Options

Investors sometimes use options, such as buying puts and/or selling calls, to limit downside risk without selling the stock. This can provide insurance and income, but it involves costs and complexity.

Holding for a Step-Up in Basis

Under current law, when you pass away, your heirs inherit stock at its current value, not your original cost. That means the embedded capital gain may disappear. This is highly tax-efficient, but it means carrying the concentration risk during your lifetime and tax laws could change.

Using Losses to Offset Gains

If you own other investments at a loss, you can sell them to offset gains from selling appreciated stock. This strategy, known as tax-loss harvesting, can make partial liquidation much more tax-friendly.

Blending Strategies

For most people, the right answer isn’t just one strategy but a combination. For example: Donating some stock to a donor-advised fundSelling part of the position gradually over a few yearsUsing losses to offset gainsKeeping part of the position longer-term for a step-up in basis. This blended approach balances diversification, tax management, charitable giving, and legacy planning. Low cost basis stock is a sign of successful investing, but it brings unique challenges. The good news is you have options, whether through gradual sales, charitable giving, family gifting, trusts, or simply holding. Insight Wealth Strategies, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Insight Wealth Strategies, LLC and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Insight Wealth Strategies, LLC unless a client service agreement is in place. Insight Wealth Strategies, LLC (IWS) and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. Certified Financial Advisor Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL ADVISOR™, in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.