[danaris]

The purpose of this isn't for someone who buys $1k of stock then uses that as collateral for a $1k loan.

It's for someone who has zero traditional income, but owns stocks worth $100M+, and uses, say, $2M of that as collateral for a $2M loan so that they can have liquid assets.

[jfoutz]

I used small numbers to focus on the mechanism. I think the point is, if I purchased the sock for $100M+, that loan shouldn't be taxed. If I purchased that asset for $1M, and take a $2M loan, only the second M would be, in some sense, realized, and subject to the tax.

[foobarian]

But... how are they repaying the loan? Selling a little bit of stock now and then, which is then taxed?

[lakis]

No. Let's say I have $100 million. Every year, for 50 years, I get a $2 million loan against only $2 million of my asset. The loans keep rotating and keep going. At the end of 50 years, I die. When I die, the assets go to my estate AND (and this is important) my assets base value is rebased to current values. My heirs sell some assets to pay off the loans. BUT the assets have been rebased to current value, so there is no tax due (since sell value is the same as base value). Let me repeat. My estate pays NO TAXES at all since the assets were rebased.

That's called tax efficiency ;-)

[itsdrewmiller]

Step up in basis on death is its own separate and obvious problem to fix (which the Democrats have also proposed doing).

[foobarian]

Huh. What about estate taxes? Or is that possible to dodge as well?

[ang_cire]

Often it's repaid with another loan. If you have 100m in stock assets to leverage, you could literally go your entire life without needing to ever actually sell the stock to pay the rolling loans, even if your 100m of stock never appreciated in value, which is unlikely- in reality that stock that's collateral is still making you even more money.