Tax increases could bring back into fashion a number of investment strategies that have languished in recent years.

Monetization strategies may become more popular if capital gains taxes rise, notes Melvin Warshaw, vice president at JP Morgan Private Bank in Boston. Collars, variable prepaid forwards, exchange funds and similar instruments are designed to hedge our market risk while delaying a sale. If tax rates rise, we may decide that the appreciation potential of our assets offsets the higher capital gains rate, and so we may decide to postpone a sale by using a monetization strategy.

Tax-aware investment vehicles that actively harvest gains against losses may become more popular if tax rates rise.

Leveraged investments in which the loan’s interest is deductible will have more appeal.

Charitable remainder trusts into which we may put appreciated securities and then sell them without incurring tax may be more attractive.

Ordinary income to capital gains conversions come in a variety of shapes and sizes but these transactions all transform income (which is usually taxed at a higher rate) into lower-taxed gains. Currently, there is a 20 percentage point spread between the two tax rates; if that margin increases due to a rise in the income tax rate, these types of transactions could become more popular. However, as JP Morgan’s Warshaw notes, the IRS takes a dim view of these transactions, and scrutinizes them for abuse.

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