How to Transition from Concentrated Positions to a Diversified Portfolio (Without Getting Hammered by Taxes)

I see this question all the time (from clients, prospects, and across financial forums):

“How do I unwind concentrated positions in my taxable account with gains to a more diversified portfolio?”

For now, we won’t dive into exchange funds, long-short overlays, CRUTs, or direct indexing. This is a first look, practical approach of what to consider when you’ve built wealth in a taxable account, and now want to shift toward a better long-term portfolio without setting off a tax bomb.

Here’s how to think about it.

1. You’re not stuck. You’re just balancing tradeoffs.

People often feel paralyzed. “I know this isn’t the portfolio I want, but I can’t sell because of the tax bill.” That framing misses the point.

You’re not stuck. You’re managing tradeoffs: the tax cost of selling versus the risk of limited diversification.

There’s a spectrum between doing nothing and liquidating everything. The goal is to find the smartest endpoint within your constraints and preferences, and build a plan for a transition.

2. Zoom out, and don’t let “perfect” get in the way of really good.

If your taxable account is gain-constrained by legacy positions, zoom out. Use other accounts to bring the overall household portfolio into balance. This is where household-level allocation matters.

Own too much tech in taxable? Underweight it in your IRA or 401(k).

Also, stop reinvesting dividends into the same positions. Use that cash flow to diversify around what you already hold. The same goes for new contributions.

You may never get from your current taxable account to a “perfect” model allocation. But you can get meaningfully closer. That’s the real goal.

3. Set a capital gains budget

Before making any moves, decide how much tax you're actually willing to pay this year to improve your portfolio. That number can be driven by your income, your giving plans, or just your tolerance for writing checks to the IRS.

When setting your capital gains budget understand a few considerations to keep in mind:

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• Long-term capital gains brackets: For 2025, a married couple may qualify for the 0% capital gains rate if their taxable income is $96,700 or lower. If you’re in a low-income year, you might be able to realize some gains tax-free. But if you’re already over that line, you’ll pay 15% or 20% on most long-term gains. You don’t need to optimize around these brackets, but you should know which one you’re in when evaluating tradeoffs.

• Net Investment Income Tax (NIIT): This 3.8% tax hits when MAGI exceeds $250K (for married couples). If you’re close, a large gain could trigger it, or push more of your income into that zone. Again, this isn’t always avoidable, but it’s critical to know when estimating your tax impact.

  
  

• Dollar-based or percentage-based caps: These are basic approaches you can take to planning your transition. For example: “Realize no more than $25K this year,” or “keep gains under 1% of the portfolio.” These targets are simple, flexible, and effective across most income levels.

4. Start your transition plan

Export tax-lot level data

Start by pulling your full cost basis breakdown (every share, every date, every price). Your brokerage platform should be able to assist you in doing this if you have trouble.

A share of AAPL bought in 2015 will have a vastly different basis profile than one bought in 2023. This lot-level view helps identify your most efficient exits.

This table summarizes six separate tax lots for Stock X, including purchase cost, share count, cost basis, purchase date, current price, and unrealized gains or losses. It highlights how holding periods and entry prices can dramatically impact portfolio-level decisions, particularly when planning around tax implications.

From there, look to:

• ID any losses to harvest. You may even find loss lots inside long-term winners (just watch the 30-day wash sale rule)

• Find the high-basis, low-gain lots as your sell candidates

• Redirect dividends and new money toward the positions you want to build

• Consider charitable giving, if the shoe fits

A note on gifting: If you are charitably inclined, donating appreciated shares can be the most tax-efficient exit strategy available. You can also explore donor-advised funds (DAF) that let you deduct the full fair market value, avoid capital gains tax, and make grants over time. It’s especially powerful in high-income years or as part of a multi-year giving plan.

5. Adjust around the immovable pieces

Sometimes a position just isn’t worth selling. That’s fine. Build around those positions instead of forcing purity of your desired allocation and adjust elsewhere in the household allocation if needed.

This process isn’t a checklist; it is an analysis with preferences. But it gives clients clarity and control instead of feeling boxed in by past decisions.Aim for progress, not perfection.

6. The sentimental side

Sometimes the hesitation to sell isn’t about taxes. It’s about an emotional attachment.

“This was my first big winner.”

“This came from my grandpa.”

“This stock paid for our first home down payment.”

Investing isn’t purely rational, and don’t ignore that. But also don’t let it override thoughtful planning.

For example, if you have an inherited low-basis stock position that you have a sentimental attachment to evaluate how much it really impacts the overall household allocation.   Depending on its impact on your total allocation, you may not have to sell it.  But, you may want to stop adding to it or reinvesting the dividend.  Over time, the position naturally became a smaller part of your overall portfolio.

The legacy stays, but the risk slowly goes away as diversification is added.

Final Word

This isn’t about chasing a perfect portfolio. It’s about building a thoughtful one, one that assesses where you are at now, and helps you get closer to where you want to be.

If you're sitting on appreciated positions in taxable accounts and wondering what your options are, you can thoughtfully explore a transition that works best for you.

About the Author

Carson McLean, CFP® is the founder of Altruist Wealth Management, a flat-fee fiduciary advisory firm serving clients virtually across the country. Carson specializes in helping clients transition from concentrated positions, optimize their retirement income, and build resilient, tax-efficient portfolios. Prior to founding Altruist, he worked with leading asset managers and now focuses on delivering transparent, planning-first advice without the industry fluff.

Disclosure

This material is for informational purposes only and should not be considered tax, legal, or investment advice. Consult your own tax professional, attorney, or advisor before making any decisions based on this content. All examples are hypothetical and do not reflect any actual client experience. Tax laws are subject to change and vary by jurisdiction.