After TaxTax Playbook

Tax Playbook · Investment tax wins

Diversify a concentrated stock position without selling

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If one stock is most of your money, selling it means a huge tax bill — Section 351 lets you swap it into a new fund without paying tax today. You hand your stock to a newly launched ETF and get diversified fund shares back; no gain is taxed at the swap, and your old cost basis carries over. To qualify, the IRS requires a real mix: no single stock can be more than 25% of what you contribute, and your five biggest holdings together cannot top 50%, tested per investor at the time of contribution. The catch: this only delays the tax — selling the fund shares later taxes the gain — and breaking any rule triggers the tax bill immediately.

Good for: Someone with a large concentrated stock position who wants to diversify without a big tax bill.

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Educational summary, not tax advice. Limits and rules change — confirm current law with your tax adviser.