Capital gains are the profits you make by selling an investment asset.

When you buy an investment asset, the original price you pay for it is known as the asset’s cost basis. When you sell that asset, you compare its sale price to its cost basis. If you made money, this is known as a “capital gain.” If you lose money, it’s a “capital loss.”

Unlike ordinary income, money you earn through work or by selling the product of your work, capital gains are subject to their own set of taxes.

If you sell an asset after holding it for less than a year, your capital gains will be taxed as ordinary income.

Remember, the capital gains tax rate applies only to the income that’s realized when you sell an asset. If you have a mix of earned income and capital gains, you must calculate each set of income based on its relevant tax bracket. If you have both capital gains and capital losses in a single tax year, you may deduct your losses from your gains when you calculate your taxes.

Consider consulting a financial advisor to determine how your potential gains may be classified so you can better know what to expect when taxes are due. Click here to get matched with up to three advisors who serve your area.

Social Security payments and retirement account withdrawals can be the two primary sources of income for many retirees.

In some cases, retirees may supplement this income by selling their homes to generate a significant amount of one-time income. Before it was amended in 1997, the IRS allowed people over age 55 to be exempt up to $125,000 worth of profit from the sale of their primary residence from their capital gains taxes.

However, this exemption no longer applies, leaving seniors fewer options to lower their capital gains taxes. Speaking with a financial advisor could be a great first step to identifying opportunities to reduce your tax liability. Take this free quiz to get matched with up to three fiduciary financial advisors who serve your area.

You can also consider these strategies to reduce the amount of capital gains taxes you will pay after selling an asset.

1. Choose Long-Term Investments

Capital gains can be classified as either short-term or long-term, each of which has its own tax rates.

Assets you have held for less than a year are considered short-term. When it comes to earning short-term gains, expect to be taxed at your ordinary tax rate. This can be as high as 37%, depending on your total taxable income.

If you want to avoid that, you should consider choosing long-term investments instead. By holding an investment for a year or more, you will qualify for long-term capital gains tax rates.

Most long-term capital gains will see a tax rate of no more than 15%, though certain assets (like coins and art) can be taxed at a rate up to 28%. Depending on your income, you may even qualify for capital gains tax rates as low as 0%.

2. Take Advantage of Tax-Deferred Retirement Plans

Your retirement accounts likely make up a bulk of your savings and future assets. It’s wise to optimize these as best you can by utilizing tax-deferred (and tax-exempt) plans, to save yourself from added capital gains taxes.

When contributing to a tax-deferred retirement plan, such as a 401(k) or traditional IRA, you’ll receive a tax deduction on your contributions in the current tax year. This can save you money on your income taxes today, as well as help you save even more toward the future.

Your money can also grow over time. When you’re finally ready to sell your investments and withdraw, any growth in the account is taxed at your ordinary income rate, rather than being subject to capital gains like other investment accounts.

A tax-exempt account, such as a Roth IRA, doesn’t offer any tax benefits today, but grows tax-free until retirement. When you’re ready to use the money, your funds (and growth) can also be withdrawn tax-free, helping you avoid capital gains yet again.

3. Offset Your Gains

If you hold a number of different assets, you may be able to offset some of your gains with any applicable losses, allowing you to avoid a portion of your capital gains taxes.

For instance, if you have one investment that is down by $3,000 and another up by $5,000, selling both will help you reduce your gains. You would only be subject to capital gains taxes on the difference – or $2,000 – rather than the full $5,000 gain of the second investment.

Another offset strategy is tax-loss harvesting. With this method, you can carry over losses from one tax year into the next, to help offset future gains. Tax loss harvesting only applies if your losses in a given year exceed your total gains.

The IRS allows no specific tax exemptions for senior citizens, either when it comes to income or capital gains. But you can still look for ways to reduce the amount of taxes you will pay in retirement.

If you’re looking for a way to decrease your tax burden, we recommend finding a financial advisor. They can help you understand your options and look for ways to save money on your tax bill, make smart investments and plan for retirement.

Consulting a fiduciary financial advisor could help you determine a plan that factors your assets and taxes into your overall retirement goals. Fiduciaries are obligated by law to act in your best interest and any potential conflicts of interest must be disclosed.

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