Tax planning for wealthy households often looks very different from what the average American experiences. While most workers rely on standard deductions and straightforward filing, high-net-worth individuals frequently use lesser-known but completely legal tax strategies to reduce what they owe.
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In 2026, these so-called loopholes are drawing more attention to wealth inequality and tax fairness, putting a spotlight on how the ultra-wealthy manage to keep their tax bills so low. The truth is, many of these strategies aren’t secret; they’re just complex enough that you don’t hear about them outside of certain professional financial circles.
GOBankingRates spoke with finance and tax experts to uncover five tax loopholes the ultra-wealthy use, why they work under current IRS rules and whether any of these strategies can realistically benefit middle-class or upper-middle-class Americans.
1. Long-Term Capital Gains Advantage
Investment income held for more than a year often gets taxed at a lower rate than regular earnings.
“Wealthy investors can afford to hold assets for extended periods because they don’t need immediate liquidity for living expenses,” said Andrew Duca, founder of Awaken Tax.
By holding onto investments longer, gains grow without triggering higher taxes right away. It’s a simple approach that can make a big difference over time and gives wealthy households more flexibility than those who rely mostly on paychecks.
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2. The Step-Up in Basis Rule
Andrew Latham, certified financial planner (CFP) at Supermoney.com, highlighted one of the biggest advantages the wealthy rely on: The step-up in basis loophole. When someone inherits property or investments, the original purchase price is “stepped up” to the current market value, wiping out decades of capital gains. Assets can then be sold with little to no capital gains tax.
3. Borrowing Against Assets
Rather than selling investments, which could trigger a taxable event, wealthy households are more likely to borrow against their assets.
Latham described the “Buy, Borrow, Die” approach, where the ultra-wealthy can tap low-interest loans secured by stocks or real estate. Since loans aren’t taxed, this creates liquidity without raising taxable income.
“When they die, those assets pass to heirs with a stepped-up basis,” he said, “erasing the tax bill entirely.”
4. Tax-Loss Harvesting
Another widely used tactic is selling investments that have lost value to offset gains elsewhere, known as tax-loss harvesting. Duca noted that crypto investors can even sell an asset at a loss and immediately buy it back because a rule that normally blocks this for stocks (the wash sale rule) doesn’t apply to digital assets.
The loss lowers taxable gains from other investments, which can reduce the overall tax bill while letting the investor stay in the same position once the asset is repurchased.
5. Credits Reserved for High Earners
Hector Castaneda, certified public accountant (CPA) at Castaneda CPA & Associates, explained that wealthy people are more likely to qualify for certain credits tied to hiring, business infrastructure and energy projects, which dramatically lower their effective tax rate.
“Most ultra-wealthy pay more tax nominally than most of the lower- and middle-class earners,” he said, “But they pay a significantly lower percent of their income.” Many Americans, who don’t run sizeable businesses or have major investments simply don’t have access to the same relief.
Final Take To GO: How the Wealthy Structure Income Overall
Many of the strategies the ultra-wealthy use aren’t secret loopholes; they’re simply parts of the tax code most people don’t take advantage of.
“Wealthy people organize their income in a different way. They make money from real estate, investments and businesses they own — not from salaries,” Castaneda explained.
Understanding how these strategies work can help everyday Americans spot approaches that might fit their own financial situation.
Caitlyn Moorhead contributed to the reporting for this article.
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This article originally appeared on GOBankingRates.com: 5 Tax Loopholes the Ultra-Wealthy Use That Most Americans Don’t Know About
