02.13.26

How To Use Section 351 Exchanges To Unload Highly Appreciated Stocks

by: Ben Mattlin

Financial advisors are using Section 351 exchanges as a way to help clients diversify highly appreciated stock positions without triggering an immediate capital gains tax. The strategy allows investors to contribute low-basis securities to a newly created exchange-traded fund (ETF) of like-kind assets while preserving the original cost basis, deferring taxes until the ETF shares are sold. Advisors say the approach can be effective for portfolios that have become overly concentrated, but caution that strict IRS requirements apply, including limits on individual holdings and asset eligibility. Experts emphasize that the strategy does not eliminate capital gains taxes and must be executed precisely to avoid disqualification, making careful documentation and client education necessary.

Read the full article on Financial Advisor.