How is a capital gain computed on the disposal of an asset?

The proceeds received on disposal, less the asset's original purchase price

The proceeds received on disposal, less the asset's adjusted cost basis

The market value at the year end, less the asset's adjusted cost basis

The proceeds received on disposal, less any income the asset produced

An investor buys one hundred shares at fifty dollars each and pays a ten dollar commission. What is the total cost basis?

Five thousand dollars, the commission being deductible as an investment expense

Four thousand nine hundred and ninety dollars, the commission reducing the outlay

Five thousand and ten dollars, the commission forming part of the tax cost

Five thousand dollars, the commission instead reducing the proceeds on the eventual sale

Why do reinvested dividends increase an investor's basis in a fund holding?

Because tax was already paid on them as income, so they are a further investment

Because the shares they buy are acquired without any commission being charged

Because reinvestment defers the tax on them until the whole holding in the fund is later sold

Because the fund credits them at the average price paid across the year

How does the basis of an asset received as a gift and later sold at a gain differ from the basis of an inherited asset?

The gift is stepped to its value at the date of the gift; the inheritance carries basis over

The gift carries the donor's basis over; the inheritance is stepped to date-of-death value

Both carry the original owner's basis over, the recipient simply standing in their place

Both are stepped to market value, the date of transfer fixing the figure in each case

How is the holding period measured, and what does it have to reach for a gain to be long-term?

From the acquisition date to the day before the sale, and it must reach a full year

From the trade date to the settlement date of the sale, and it must exceed two years

From the day after acquisition to and including the sale date, and it must exceed a year

From the first day of the tax year of purchase, and it must span two tax years

At what rates is a short-term capital gain taxed?

At ordinary income rates, but capped at the top long-term rate

At a flat rate of twenty-eight percent, whatever the taxpayer's other income

At a flat rate of fifteen percent, with a surcharge for the highest earners

At ordinary income rates, running from ten to thirty-seven percent

An investor in the thirty-seven percent ordinary bracket has a gain of one hundred thousand dollars on a position held just under a year, and the long-term rate that would apply is twenty percent. What does waiting a few more days save?

Seventeen thousand dollars of federal tax on the same economic gain

Thirty-seven thousand dollars, the short-term tax being avoided altogether

Twenty thousand dollars, the long-term tax being avoided altogether

Nothing in the current year, the benefit arriving when the proceeds are next invested

Above what levels of modified adjusted gross income does the net investment income tax begin to apply?

One hundred thousand dollars, whatever the taxpayer's filing status may be

Two hundred thousand dollars single, two hundred and fifty thousand filing jointly

Two hundred thousand dollars single, four hundred thousand dollars for a married couple filing jointly

Five hundred thousand dollars single, one million dollars filing jointly

Which kinds of income make up net investment income for the purposes of the surtax?

Capital gains and dividends only, interest and rents being excluded

Capital gains, dividends, interest and wages above the stated threshold

Capital gains, dividends, interest, rents and other passive income

Long-term capital gains only, short-term gains being taxed as ordinary income

What maximum long-term rate applies to a gain on collectibles such as art, coins or wine?

Thirty-seven percent, collectibles being denied preferential treatment entirely

Twenty percent, collectibles being treated like any other long-held asset

Fifteen percent, reflecting the illiquidity of the market for such items

Twenty-eight percent, above the maximum for ordinary capital assets

A gain on the sale of depreciated real property is split, with part taxed at a maximum of twenty-five percent. What is the split preventing?

An ordinary deduction being recovered later at the lower capital gain rate

A property being depreciated below its true remaining economic value

A seller claiming depreciation and improvement costs on the same expenditure

A gain being deferred indefinitely by rolling it through successive exchanges of one property for another

What relief does Section 1202 offer on a gain from qualified small business stock?

A flat deferral of the whole gain until the replacement holding is disposed of

Exclusion of fifty to one hundred percent of the gain, according to acquisition date

Taxation of the whole gain at the reduced rate applying to collectibles

A credit against tax equal to the amount originally invested in the company

A holding bought at ten dollars a share now trades at one hundred and has not been sold. What is the current tax position?

Tax is due on the appreciation, payable with the return for the current year

Tax is due only once the appreciation exceeds the amount originally invested

Nothing is due, gains being taxed only when realised on a disposal

Tax is deferred but the appreciation must still be reported for the year

An investor who bought a fund two months ago receives a capital gain distribution. What determines whether it is taxed as long-term or short-term?

Whether the distribution is taken in cash or reinvested in further shares

How long the investor has held the shares in the fund itself

Whether the fund is actively managed or tracks a published index

How long the fund held the securities that produced the gain

An investor sells a holding at a gain and buys the identical security back the following day. What is the tax consequence of the repurchase?

None: the gain stands and is taxable, the rule reaching losses alone

The gain is deferred and added to the basis of the newly bought shares

The gain is recharacterised as short-term whatever the original holding period

The gain is disregarded, the position being economically unchanged throughout

A client wants to give ten thousand dollars to charity and holds low-basis stock of equal value. Why is donating the stock better than selling it and giving the cash?

The gain is deferred until the charity sells and the deduction is the basis

The gain is never taxed and the deduction is still the full market value

The gain is taxed at a reduced rate and the deduction is the full market value

The gain is taxed as usual but the deduction is increased by the tax paid

Within what period must a realised gain be reinvested in a qualified opportunity zone fund, and what does a ten-year hold offer?

Thirty days, with a ten-year hold offering a reduced rate on the deferred gain

One full tax year, with a ten-year hold offering a step-up of the original basis

One hundred and eighty days, with a ten-year hold offering exclusion of the new gain

Ninety days, with a ten-year hold offering a credit against the deferred liability

What does an instalment sale of a business or a property achieve for the seller's tax position?

It removes the gain from charge provided the term exceeds five years

It converts the gain into ordinary income received evenly across the term

It fixes the rate applying to the gain at the rate of the year of sale

It spreads recognition of the gain across the years the proceeds arrive

How are net gains and net losses on Section 1231 business property treated, and why does the treatment favour the owner?

Gains as long-term capital, losses as ordinary, so each is taxed the better way

Gains as ordinary, losses as capital, so each is matched to the income it arose from

Both as long-term capital, so the annual deduction limit applies to the losses

Both as ordinary, so the property is taxed consistently with the trade using it

An investor bought a property as an investment for three hundred thousand dollars, claimed no depreciation on it, and later spent sixty thousand dollars on capital improvements. She sells it for three hundred and eighty-five thousand dollars. What is her capital gain?

Eighty-five thousand dollars, the gain being measured from the three hundred thousand she originally paid

Twenty-five thousand dollars, the improvement spending having raised her basis to three hundred and sixty thousand

One hundred and forty-five thousand dollars, the improvement spending having lowered her basis to two hundred and forty thousand

Eighty-five thousand dollars, the improvement spending having been deductible against her income in the year it was paid

How do most state income taxes treat a long-term capital gain?

As exempt income, most states leaving capital gains to be taxed by the federal code

At the federal long-term rates, most states adopting the same schedule for their own tax

As ordinary income, without the preferential rates the federal code applies to long-term gains

At half the state's ordinary rate, most states excluding part of any long-term gain

Two investors each earn eight percent a year before tax for twenty years and pay the same tax rate on every dollar of return. One holds a stock paying no dividends and sells it at the end; the other holds an investment paying its return out each year as taxable income and reinvests what is left after tax. How do their after-tax results compare?

The stockholder ends ahead, but only because the tax on its gain is charged at a lower rate

They end level, the same rate having been charged on the same total pre-tax return

The income investor ends ahead, its tax having been settled year by year with no large bill at the end

The stockholder ends ahead, the tax not yet paid having stayed invested and earned its own return

An investor sells a share holding at a thirty thousand dollar gain and, the same week, reinvests every dollar of the proceeds in shares of a different listed company. When is the gain taxed?

In the year of the sale, the reinvestment of the proceeds making no difference at all

When the replacement shares are sold, the gain carrying over into their basis until then

Over the replacement's holding period, recognised in equal portions each year it is held

In the year of the sale, but only on the part of the gain not reinvested within the year

Why do index funds and exchange-traded funds usually generate far fewer capital gain distributions than actively managed mutual funds?

They offset each gain they realise with losses deliberately harvested on other holdings before the year ends

Their low turnover rarely requires them to sell holdings and realise gains in the portfolio

They reinvest the gains they realise in new holdings instead of paying them out

Tracking a published index exempts them from any obligation to distribute realised gains

An investor bought mutual fund shares in January and has sold none of them. In December the fund distributes capital gains realised within its portfolio. When is the investor taxed on that distribution?

Not at all, the fund having already paid the tax on the gains itself before distributing them to shareholders

When the fund shares are eventually sold, the distribution being added to their basis until that sale takes place

In the year it is received, even though the investor has not sold any of the fund shares

In the following year, when the fund issues its annual tax statement for the distribution

Over what span of days around a sale at a loss does a purchase of a substantially identical security trigger the wash sale rule?

Thirty-one days, running from fifteen days before the sale to fifteen days after it

Sixty-one days, running from the day of the sale to sixty days after it

Thirty-one days, running from the day of the sale to thirty days after it

Sixty-one days, running from thirty days before the sale to thirty days after it

An investor sells shares at a fifteen hundred dollar loss and, twelve days later, buys substantially identical shares for eight thousand dollars. What is the basis of the new shares?

Nine thousand five hundred dollars, fifteen hundred more than was paid for them

Eight thousand dollars, the loss having been deducted in the year of the sale

Eight thousand dollars, the disallowed loss being forfeited outright

Six thousand five hundred dollars, fifteen hundred less than was paid for them

Which kinds of property fall within the Section 1231 framework?

Real estate used in a trade or business only, business equipment following separate rules

Business equipment only, business real estate falling under the Section 1250 rules instead

Shares, bonds and fund interests that a business owner holds as long-term investments

In a year with no other capital transactions, a business owner's Section 1231 dispositions produce a net loss of forty thousand dollars. How much of it may be set against ordinary income that year?

None of it, the loss waiting to be set against Section 1231 gains in later years

Three thousand dollars, with the other thirty-seven thousand carried forward to later years

All forty thousand dollars, with no annual limit applying to the deduction

Twenty thousand dollars, half of a business property loss being allowable in one year

A parent bought shares at twenty dollars each and held them until death, when they were worth ninety dollars. The heir sells them a year later at one hundred and ten dollars. What taxable gain per share does the heir have?

Ninety dollars, the rise since the parent first bought the shares

None, shares received by inheritance being exempt when the heir sells

Seventy dollars, the rise during the parent's lifetime

Twenty dollars, the rise since the parent's death

Capital Gain: Taxation, Basis, Holding Period and Rates

What Is a Capital Gain?

Long-term capital gains are taxed at federal rates of zero, fifteen, or twenty percent — versus up to thirty-seven percent for short-term gains — with an additional three point eight percent net investment income tax applying above two hundred thousand dollars for single filers, making holding period management one of the highest-value tax decisions in investment planning. This entry covers basis calculation and the inherited asset step-up that permanently eliminates tax on appreciation accumulated during a decedent’s lifetime, the twenty-eight percent collectibles rate and twenty-five percent Section 1250 recapture rate, the Section 1202 qualified small business stock exclusion, capital gain distributions from actively managed mutual funds, the one hundred and eighty day opportunity zone reinvestment window, and the wash sale rule’s application to tax-loss harvesting.

Definition and Overview

A capital gain is the profit realised when a capital asset is sold or otherwise disposed of for a price that exceeds the asset’s adjusted cost basis. It is the positive difference between the proceeds received from the sale of the asset and the taxpayer’s basis in that asset, where basis typically represents the original purchase price adjusted for any subsequent costs, improvements, or other specified events that affect the tax cost of the asset. Capital gains arise across a wide range of asset types including stocks, bonds, mutual fund shares, exchange-traded funds, real estate, collectibles, business interests, and other property held for investment or business purposes.

The taxation of capital gains is one of the most important and practically consequential areas of tax law for investors and investment advisers. The United States tax code treats capital gains differently from ordinary income, applying preferential tax rates to gains on assets held for more than one year while taxing gains on assets held for one year or less at ordinary income tax rates. This distinction between long-term and short-term capital gains is among the most important tax planning considerations in investment management, influencing decisions about when to sell appreciated assets, how to structure portfolios for tax efficiency, and how to evaluate the after-tax returns of different investment strategies.

Understanding capital gains thoroughly requires understanding not only the basic definition but also the calculation of basis, the distinction between short-term and long-term gains, the applicable tax rates, the rules governing specific types of transactions, and the planning strategies available to investors seeking to manage their capital gain tax liability.

The Concept of Basis

Basis is the foundation of capital gain calculation and understanding it precisely is essential for accurate tax reporting and effective tax planning. The basis of an asset determines how much of the proceeds from its eventual sale will be treated as a return of the investor’s original investment, which is tax-free, and how much will be treated as a gain, which is taxable.

The starting point for basis is the cost basis, which for most purchased assets is simply the purchase price paid for the asset including any commissions, fees, or other transaction costs paid at the time of acquisition. An investor who purchases one hundred shares of stock at fifty dollars per share and pays a ten-dollar commission has a total cost basis of five thousand and ten dollars, or fifty dollars and ten cents per share.

Basis is adjusted over time by various events that change the investor’s economic investment in the asset. For stocks and mutual funds, reinvested dividends increase the basis because the investor has paid tax on those dividends as ordinary income when received, meaning they represent an additional economic investment that should not be taxed again when the shares are sold. For bonds purchased at a premium, the premium is amortised and reduces the basis over the life of the bond. For bonds purchased at a discount, the discount may be accreted and increases the basis. For real estate, the cost of capital improvements adds to the basis while depreciation deductions reduce it.

When an asset is received as a gift, the recipient’s basis depends on whether the asset is ultimately sold at a gain or a loss. If sold at a gain, the recipient takes the donor’s basis, meaning the gain accumulated during the donor’s ownership is not eliminated by the gift but carries over to the recipient. If sold at a loss and the fair market value at the time of the gift was below the donor’s basis, the recipient’s basis for loss purposes is the lower fair market value at the date of the gift, preventing the double counting of a loss.

When an asset is inherited, the recipient receives a stepped-up basis equal to the fair market value of the asset at the date of the decedent’s death. This step-up eliminates any capital gain that accumulated during the decedent’s lifetime, representing one of the most significant tax planning opportunities in estate planning. An investor who purchased stock for ten dollars per share that has appreciated to one hundred dollars per share has an unrealised gain of ninety dollars per share. If that investor holds the stock until death, the heir receives it with a basis of one hundred dollars per share, and the ninety-dollar per share gain accumulated during the decedent’s lifetime is permanently excluded from income taxation.

Short-Term vs Long-Term Capital Gains

The distinction between short-term and long-term capital gains is the single most important distinction in capital gains taxation, determining whether preferential tax rates apply to a gain or whether the gain is taxed at the same rates as ordinary income.

A short-term capital gain arises when a capital asset is sold after a holding period of one year or less, measured from the day after the date of acquisition to and including the date of sale. Short-term capital gains are taxed at ordinary income tax rates, which range from ten percent to thirty-seven percent depending on the taxpayer’s total taxable income and filing status. Because short-term gains receive no preferential treatment, they are among the least tax-efficient forms of investment income.

A long-term capital gain arises when a capital asset is sold after a holding period of more than one year. Long-term capital gains are taxed at preferential rates that are significantly lower than ordinary income rates for most taxpayers. The long-term capital gain tax rates are zero percent for taxpayers in the lower income brackets, fifteen percent for most middle and upper-middle income taxpayers, and twenty percent for the highest income taxpayers. These preferential rates apply to long-term gains on most capital assets including stocks, bonds, and real estate, though special rules apply to certain categories of assets as discussed below.

The one-year holding period requirement creates a powerful tax planning incentive to hold appreciated assets for more than one year before selling, converting what would otherwise be short-term gains taxed at ordinary income rates into long-term gains taxed at preferential rates. An investor in the thirty-seven percent ordinary income bracket who realises a gain of one hundred thousand dollars saves seventeen thousand dollars in federal income tax by holding the asset for just over one year rather than selling a day early, paying at the twenty percent long-term rate rather than the thirty-seven percent short-term rate.

Net Investment Income Tax

In addition to the regular capital gains tax rates, high-income taxpayers are subject to the net investment income tax, enacted as part of the Affordable Care Act and effective beginning in 2013. The net investment income tax imposes an additional three point eight percent tax on the lesser of net investment income or the amount by which modified adjusted gross income exceeds a threshold of two hundred thousand dollars for single filers and two hundred and fifty thousand dollars for married filing jointly.

Net investment income includes capital gains, dividends, interest, rental income, and other passive income. For high-income investors the net investment income tax effectively adds three point eight percent to the tax rate on long-term capital gains, increasing the maximum federal rate from twenty percent to twenty-three point eight percent. Combined with applicable state income taxes, which treat capital gains as ordinary income in most states, the total effective rate on long-term capital gains for high-income investors in high-tax states can approach or exceed thirty percent.

Special Capital Gain Rates for Specific Asset Types

While the standard long-term capital gain rates of zero, fifteen, and twenty percent apply to most capital assets, certain categories of assets are subject to different rates that must be understood for complete capital gains tax planning.

Collectibles including art, antiques, coins, stamps, wine, and similar items are subject to a maximum long-term capital gain rate of twenty-eight percent rather than the standard twenty percent maximum. This higher rate reflects a policy decision to treat gains on collectibles less favourably than gains on productive capital assets such as stocks and real estate.

Section 1250 recapture applies to gains on the sale of real property to the extent that depreciation deductions were taken on the property during the ownership period. The portion of the gain attributable to prior depreciation deductions is subject to a maximum rate of twenty-five percent rather than the standard twenty percent maximum. This recapture provision prevents taxpayers from permanently avoiding taxation on depreciation deductions by converting the ordinary income benefit of those deductions into a capital gain taxed at a lower rate.

Qualified small business stock, defined under Section 1202 of the Internal Revenue Code as stock in certain domestic corporations meeting specified criteria, may qualify for an exclusion of fifty to one hundred percent of the gain on sale, depending on when the stock was acquired and whether the corporation meets the requirements of the provision throughout the holding period. This exclusion is designed to encourage investment in small businesses by reducing or eliminating the capital gain tax on successful investments.

Realised vs Unrealised Gains

A fundamental distinction in capital gains taxation is the difference between realised and unrealised gains, which determines when and whether a gain is subject to tax.

An unrealised gain, also called a paper gain, exists when the current market value of an asset exceeds the investor’s basis but the asset has not yet been sold. Unrealised gains are not subject to federal income tax under the current US tax system, which taxes gains only upon realisation through a sale or other taxable disposition of the asset. An investor who purchased stock at ten dollars per share that has appreciated to one hundred dollars per share has an unrealised gain of ninety dollars per share but owes no tax on that gain until the stock is sold.

The ability to defer taxation of gains until realisation is a significant advantage of equity investing compared to investment vehicles that generate current taxable income. An investor who holds a low-basis appreciated stock position for many years allows the full pre-tax value of the gain to continue compounding, deferring the tax liability until the stock is sold and potentially reducing it further through holding period management, charitable giving strategies, or the step-up in basis available at death.

A realised gain occurs when an asset is sold or otherwise disposed of in a taxable transaction. Once a gain is realised, the taxpayer must report it on their tax return and pay any applicable tax in the year of realisation. The tax becomes due regardless of whether the proceeds are reinvested, spent, or held as cash.

Capital Gain Distributions from Mutual Funds

Investors in mutual funds are subject to capital gains taxation not only when they sell their fund shares but also when the fund itself realises gains from selling securities within the portfolio and distributes those gains to shareholders. These capital gain distributions are taxable to shareholders in the year they are received, regardless of whether the shareholder reinvests the distribution in additional fund shares or receives it in cash.

Capital gain distributions from mutual funds are classified as short-term or long-term based on how long the fund held the underlying securities that generated the gain. Long-term capital gain distributions are taxed at the preferential long-term capital gain rates. Short-term capital gain distributions are taxed as ordinary income.

The potential for taxable capital gain distributions is one of the most important tax disadvantages of actively managed mutual funds held in taxable accounts. Active fund managers who trade frequently generate both short-term and long-term capital gains that are distributed to all shareholders, creating a tax liability that reduces after-tax returns. Index funds and exchange-traded funds typically generate far fewer capital gain distributions because their low-turnover strategies rarely require the realisation of gains within the portfolio, making them significantly more tax-efficient vehicles for taxable account investing.

The Wash Sale Rule

The wash sale rule is an important limitation on the ability of investors to realise capital losses for tax purposes while maintaining substantially the same economic position in the investment. Under the wash sale rule, a taxpayer who sells a security at a loss and purchases a substantially identical security within thirty days before or after the sale cannot deduct the loss for tax purposes. The disallowed loss is instead added to the basis of the newly purchased securities, preserving the economic benefit of the loss deduction for the future when the new position is eventually sold.

The wash sale rule applies symmetrically to purchases and sales within the sixty-one day window surrounding the loss sale. An investor who purchases additional shares of a stock thirty days before selling other shares of the same stock at a loss has triggered the wash sale rule, disallowing the loss deduction on the shares sold.

The wash sale rule is relevant to capital gain planning because tax-loss harvesting, the deliberate realisation of capital losses to offset capital gains, is one of the most effective tools for managing after-tax investment returns. Investors implementing tax-loss harvesting strategies must be careful to avoid triggering the wash sale rule by inadvertently purchasing substantially identical securities within the prohibited window.

Capital Gain Planning Strategies

The management of capital gains tax liability is one of the most practically important aspects of investment planning for taxable investors, and numerous strategies are available to reduce, defer, or eliminate capital gain taxes.

Holding period management involves deliberately extending the holding period of appreciated assets beyond one year to qualify gains for long-term treatment, converting short-term gains that would be taxed at ordinary income rates into long-term gains taxed at preferential rates. This simple strategy can dramatically reduce the tax cost of realising gains for investors in high ordinary income brackets.

Tax-loss harvesting involves deliberately realising capital losses on positions that have declined in value to offset capital gains elsewhere in the portfolio, reducing the current year tax liability. Capital losses can offset capital gains dollar for dollar without limitation, and net capital losses of up to three thousand dollars per year can be deducted against ordinary income, with any excess losses carried forward to future years.

Charitable giving of appreciated securities allows investors to donate low-basis appreciated stock directly to a qualified charity rather than selling the stock, paying tax on the gain, and donating the after-tax proceeds. By donating the stock directly, the investor avoids the capital gain tax entirely while receiving a charitable deduction for the full fair market value of the donated securities, providing a double tax benefit that makes charitable giving of appreciated securities one of the most tax-efficient strategies available.

Opportunity zone investing, established by the Tax Cuts and Jobs Act of 2017, allows investors to defer capital gains by reinvesting realised gains in qualified opportunity zone funds within one hundred and eighty days. Gains held in qualifying opportunity zone investments for ten years or more may be excluded from income entirely, providing significant deferral and potential exclusion benefits for long-term investors.

Instalment sales allow sellers of certain assets including real estate and business interests to spread the recognition of capital gain over multiple years by receiving the proceeds in instalments rather than in a lump sum, potentially keeping annual income below the threshold for higher tax rates or the net investment income tax in each year.

Section 1231 Gains and Business Property

For business assets including real estate used in a trade or business, equipment, and other depreciable business property, the capital gain rules operate within a specialised framework under Section 1231 of the Internal Revenue Code.

Section 1231 gains on business property held for more than one year are treated as long-term capital gains if the taxpayer’s net Section 1231 gains for the year exceed net Section 1231 losses. However Section 1231 losses are treated as ordinary losses, fully deductible against ordinary income without the three thousand dollar annual limitation applicable to capital losses. This asymmetric treatment, allowing ordinary loss treatment for losses but preferential long-term capital gain treatment for gains, is one of the most tax-favourable provisions in the Internal Revenue Code for business property owners.

Examination Relevance and Key Takeaways

Capital gains are among the most heavily tested tax topics on the Series 65 examination, appearing in the context of investment planning, tax-efficient portfolio management, and the evaluation of after-tax returns. Candidates must understand the definition of a capital gain and the calculation of basis, the distinction between short-term and long-term gains and their applicable tax rates, the net investment income tax and its effect on high-income investors, the treatment of capital gain distributions from mutual funds, the wash sale rule and its implications for tax-loss harvesting, and the primary capital gain planning strategies available to investment advisory clients.

The core points to retain are these: a capital gain is the excess of sale proceeds over the adjusted cost basis of a capital asset; short-term gains on assets held one year or less are taxed at ordinary income rates while long-term gains on assets held more than one year are taxed at preferential rates of zero, fifteen, or twenty percent; high-income investors pay an additional three point eight percent net investment income tax on capital gains; unrealised gains are not taxable until the asset is sold creating a powerful deferral opportunity; the wash sale rule disallows a loss deduction when substantially identical securities are purchased within thirty days before or after the sale; tax-loss harvesting, holding period management, and charitable giving of appreciated securities are the primary strategies for managing capital gain tax liability; and the step-up in basis at death eliminates the capital gain tax on appreciation during the decedent’s lifetime making estate planning an important dimension of capital gain management.