Wall Street Journal, Spending Law Adds New Ways to Reduce Capital-Gains Tax:

Congress expanded opportunities for taxpayers to postpone, minimize or avoid capital-gains taxes in President Trump’s new tax law, giving boosts to investors without cutting the headline rate.

While Trump-era Republicans have cut taxes on wages, business income, corporations and estates, they have left the top capital-gains rate exactly where it sat on Jan. 1, 2013: 23.8%. Behind that stasis, however, Congress continued shrinking the capital-gains tax base.

In the tax-and-spending legislation that Trump signed into law July 4, Republicans reupped the Opportunity Zone tax break for investments in low-income areas and made it permanent, letting investors defer and reduce taxes. They also expanded a break often used by venture-capital investors that can wipe out capital-gains taxes when a startup is sold. …

Republicans nearly included a capital-gains tax break in their new school-choice tax credit but changed course at the last minute. Still, the new law’s estate-tax cut and blessing for business paths around the cap on the state and local tax deduction indirectly lighten the tax burden on capital gains. So do enhanced health savings accounts and corporate tax cuts, including the 2017 tax-rate reduction and this year’s expanded investment deductions.

“All of this is expanding choice for sophisticated taxpayers in order to get the best deal they can out of the tax system, and in ways that don’t make a lot of sense,” said David Kamin, a senior tax-policy official in the Obama and Biden administrations. …

Opportunity Zones, which have bipartisan roots, help investors reduce capital-gains taxes. Investors roll gains into a special fund to defer taxes. They get a 10% tax reduction if they hold the Opportunity Zone investment for five years—and triple that for rural investments under a new provision. The Opportunity Zone investment itself can be free of capital-gains taxes after 10 years. … The Opportunity Zone changes are projected to save taxpayers $41 billion through 2034.

The other major new change expands the break for qualified small-business stock under tax code Section 1202. That provision has enjoyed bipartisan support and backing from the venture-capital and high-tech industries, and it is used to entice investors in start-ups with growth potential. The break can let investors eliminate all capital-gains taxes when they sell stock meeting specified criteria. The new law enhances several features and is projected to save taxpayers $17 billion. 

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