Why Your Capital Gains May Not Be Taxed at 20%

If you hold meaningful appreciated assets or equity compensation, the 20% capital gains assumption can be misleading. The Alternative Minimum Tax can change the effective rate on your gains — and it often shows up in years when income stacks in ways that weren’t modeled ahead of time.

The issue is not the headline rate. The issue is how different pieces of your income interact.

If you exercise incentive stock options, the “spread” between your strike price and the current value can become income under AMT — even though you haven’t sold the shares and haven’t received liquidity.

If you realize a large capital gain in the same year, that gain can reduce the AMT exemption. That reduction increases the effective tax rate applied to your income and gains.

Add high state tax exposure or certain home equity interest, and the AMT calculation becomes more likely to apply.

This is where families get surprised. Not because the rules are hidden — but because decisions were made in isolation.

Before you exercise options or realize a concentrated gain, we step back. We look at how the timing affects your total income profile. We evaluate whether staging creates more flexibility. We assess whether liquidity is sufficient if AMT applies.

The objective is not to minimize tax at all costs. The objective is to avoid forced decisions because of tax acceleration.

Capital decisions require sequencing. Tax is part of sequencing.

When equity compensation, capital gains, and liquidity intersect, modeling must precede action.

Written by Christi Shell, CWS®, AAMS®, BFA™, CETF®, Managing Director and Private Wealth Strategist at Shell Capital Management, LLC.

To speak with Christi about your financial situation, request a private consultation.

Shell Capital Management, LLC is a registered investment adviser. This material is for informational and educational purposes only and does not constitute investment, legal, or tax advice. Advisory services are only offered to clients or prospective clients where Shell Capital Management, LLC is properly registered or exempt from registration. Any views are as of the date published and may change. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results.