Concentrated Stock: How to Unwind a Position Without a Tax Disaster

Key takeaways

Any single stock above 10% to 15% of your net worth is a concentration worth addressing, regardless of how good the company is.
The tax on selling is real but usually smaller than the risk of holding; it's a cost to manage, not a reason to do nothing.
Staged sales sized to the capital gains brackets, paired with harvested losses, unwind most positions over two to four years.
Appreciated shares are the best asset to give to charity, and shares held until death get a full step-up in basis.

Nobody decides to have a concentrated position. It just happens: a decade of RSU vests never sold, a founder's stake, a grandparent's blue chip that showed up in an inheritance, a stock that simply did very well. By the time it's a third of your net worth, the tax on selling feels like a wall, so the position stays. And stays.

This is how we think about taking it down.

The problem is concentration, not the stock

The case against concentration has nothing to do with whether the company is good. A single company can lose most of its value for reasons that have nothing to do with its quality: a regulatory change, a technology shift, a fraud, a lawsuit, a bad acquisition, or just a decade of going nowhere while the market rises. Research on the U.S. market since 1980 finds that roughly four in ten stocks suffered a permanent decline of 70% or more from their peak. The index kept rising because the winners offset them. A single holding has no offset.

If you're an employee, it's worse. The stock, the salary, the unvested grants, and often the health insurance all ride on the same company.

Our rule of thumb: a single stock above 10% to 15% of investable assets is worth addressing, and above 25% is urgent.

The tax is a cost, not a wall

Selling a position with a large embedded gain triggers capital gains tax: 15% or 20% at the federal level in 2026 depending on income, plus 3.8% net investment income tax above $200,000 single or $250,000 joint, and nothing at the state level in Florida. On a $1 million position with an $800,000 gain, the federal bill might be $190,000.

That's a big number. It's also less than the position would lose in a fairly ordinary bad year for a single stock, and it's a one-time cost against a permanent reduction in risk. The question we'd rather you ask is "what does it cost to remove this risk, and over what period can that cost be minimized?" Not "how do I avoid the tax?"

Staged sales, sized to the brackets

The most reliable approach is to sell over two to four years, sizing each year's sales to the tax brackets. Long-term gains are taxed at 0% up to $98,900 of taxable income for joint filers in 2026, 15% up to $613,700, and 20% above. Selling enough each year to reach, but not exceed, the top of the 15% bracket avoids the 20% rate and, with some care, the IRMAA thresholds for anyone near Medicare age.

Along the way, tax-loss harvesting in the rest of the portfolio produces losses that offset part of each year's gain. A bank of harvested losses built during a down market can make a substantial sale nearly tax-free.

We sell the highest-basis lots first, which requires specific lot identification with the custodian. And we set the pace by the size of the risk: a position at 40% of net worth comes down faster than one at 15%, even if that means a higher tax cost.

Charitable gifts of appreciated shares

If you give to charity at all, appreciated stock is the best thing to give. Donating shares held more than a year deducts the full market value (subject to a 30% of AGI limit for public stock, with carryforward) and eliminates the gain entirely. A $50,000 gift of stock with a $10,000 basis saves the tax on a $40,000 gain and delivers the same $50,000 to the charity.

A donor-advised fund lets you make several years of gifts in one high-income year, take the deduction then, and grant the money out over time. Under the 2025 law, itemized charitable deductions face a 0.5% of AGI floor starting in 2026 and a 35% cap on the value of the deduction in the top bracket. That makes bunching gifts into one year more valuable, and appreciated shares are the right thing to bunch.

For larger positions, a charitable remainder trust accepts the stock, sells it without tax inside the trust, pays you an income stream for life or a term of years, and leaves the remainder to charity. It's a real tool for someone with both a concentration and charitable intent; we cover it in charitable remainder trusts.

Exchange funds

An exchange fund pools concentrated positions from many investors into a diversified partnership. Each investor contributes their stock and receives a share of the pool without a taxable sale. After seven years, you can withdraw a diversified basket of stocks with your original basis carried over. The gain is deferred, not eliminated, and the funds carry fees, illiquidity, minimums typically of $500,000 or more, and a required allocation to illiquid assets to satisfy tax rules. For the right position they're useful. For most, they're a second choice behind staged sales.

Hedging and monetization

Options-based strategies (collars, prepaid variable forwards) can protect a position against a decline without selling, and can raise cash against it. They're complex, they carry costs and tax rules of their own, and they mostly make sense for large positions held by insiders who can't sell freely. For a public-company executive subject to trading windows, a 10b5-1 plan that schedules sales in advance is usually simpler and works better.

Holding until death

Shares held until death get a step-up in basis, and the entire gain disappears. For an older investor with a modest position and a short horizon, holding can be rational. For a 55-year-old with a third of their net worth in one stock, "wait for the step-up" is a bet that the stock survives thirty years. It also ignores that the heirs inherit the concentration along with the basis.

The middle path we often use: unwind most of the position over several years, and leave a modest slice, the lowest-basis lots, to be held for the step-up or given to charity.

Employees: the special cases

Employer stock in a 401(k) may qualify for net unrealized appreciation treatment, which taxes the gain at capital gains rates rather than ordinary rates when the shares are distributed in kind. Incentive stock options have their own AMT considerations. RSU shares can be sold at vesting with no gain at all, which is why the cheapest unwinding is the one that starts before the position gets built; see RSU tax planning.

Where we come in

We start with the number: the position as a share of net worth, its basis by lot, and the tax cost of selling all of it at once. Then we build a multi-year schedule with the bracket targets, the harvesting plan, the charitable component if there is one, and the slice, if any, to hold. The schedule lives inside the tax projection and gets executed as part of the portfolio. That's the advantage of equity compensation planning and investment management sitting under one roof.

Frequently asked questions

What counts as concentrated?

We use 10% of investable assets as the threshold for attention and 25% as the threshold for urgency. Employees should count unvested grants and the value of their job in the same calculation.

Should I sell everything at once?

Sometimes, if the position is very large relative to net worth, the company is in trouble, or the gain is small. More often a staged plan over two to four years reduces tax without adding much risk, provided the schedule is fixed in advance and actually followed.

Does the wash sale rule affect selling a gain?

No. The wash sale rule applies to losses. You can sell a gain and rebuy immediately, though there's rarely a reason to.

What if my basis is unknown?

Old positions, inherited shares, and shares from spin-offs and mergers often have poor basis records. Reconstructing it is worth the effort; if it can't be done, the IRS presumes zero basis, which is the worst case. Inherited shares take the value on the date of death.

Joseph G. Valerio, CFP®, EAFounder and Lead Advisor at Valerio Wealth Management, a fee-only, fiduciary virtual family office in Miami, Florida. One advisor, credentialed in both financial planning and federal tax. About Joseph

This article is general education, not individualized advice, and it is not tax, legal, or accounting advice. Figures reflect federal law for the year stated and can change. Valerio Wealth Management does not prepare or file tax returns. Speak with a qualified professional about your own situation before acting.