[doe_eyes]

By borrowing against their holdings. The framing is deceptive. You can do this too: there is no requirement to have billions in collateral. If you own stocks, your brokerage will lend you money at a very low rate, secured by the equity - typically up to about half of your stocks' worth.

The gotcha is market risk. If there's another crash akin to the housing crisis - and there will be - the bank will liquidate your holdings and possibly leave you on the hook for more. The difference is that Elon may be diversified enough to survive, while less savvy margin-surfers might not.

[hn_throwaway_99]

I disagree the framing is deceptive. A big reason this is done is to avoid paying taxes altogether - borrow against your equity, and then when you die your heirs receive a step-up in basis, so the gains are never taxed. To make it worth while you need to have a crap ton of money, such that the interest on your loans is less than the estate taxes you'd pay. Only very, very rich people pay any estate taxes in the first place because a couple's estate tax exemption is currently over $27 million.

[eadmund]

The issue is the step-up in basis, not borrowing against assets. The step-up in basis really is a giveaway. I think that it would make a ton of sense to transfer the basis rather than step it up.

[roenxi]

Or the issue is the money printing that tends to be going on. This strategy should be too risky to work. They'd be losing interest on the money each month and they'd go bankrupt in the long term due to eventually borrowing money into a market downturn.

If interest rates are too low though then they wouldn't pay interest each month and the market will keep inflating - so the strategy will work.

Basically, this looks like a tax-effective strategy to stand in front of the money hose. If the money hose wasn't there it would be a tax-effective path to near certain ruin and much less attractive.

[KingOfCoders]

One of the best things when you are rich, you can buy when everyone wants to sell, and sell when everyone wants to buy.

At one level of money you are not impacted by a market downturn or crisis.

Many very rich people in Germany became very rich during or after WW2 - but they already were rich. Normal people just get poor in a crisis or market downturn.

[bushbaba]

And many very rich people in Germany got very very rich in ww2 by stealing Jewish assets and businesses.

[KingOfCoders]

  A. Yes. Plus selling to the Wehrmacht ("war is a racket"), often with forced labour - or both, first stealing from Jews then selling to the Wehrmacht (like the current owners of BMW, ancestors sold to the Wehrmacht, profited from forced laber and additionally stole from Jews [1]). In communist East Germany Jews even couldn't get back their assets after the war, because Jews where "capitalists".

  B. The vast majority of Germans profited from stealing from Jews (see book "Hitlers Volksstaat"), e.g. Germany was out of money before Kristallnacht and Jews had to pay 1 billion Reichsmark after the progroms, which helped the German state. Also jewish furniture etc. was auctioned off to all Germans - people too often only talk about arts and houses.

[1] The Quandts already were rich selling to the Prussian army, then during hyper-inflation of the economic crisis bought struggling companies, then "bought" companies from Jews who were forced to sell, then used forced labour in their companies, sold to the Wehrmacht, after WW2 got everything back and the debt they accumulated to buy all of that had evaporated because of the war. Today they own large chunks of BMW for example.

[Dracophoenix]

You don't need to be rich to do that, just wise enough to keep savings and live below your means.

[from-nibly]

No you need to be really long term liquid and thats what poor people really don't have ( liquid assets to throw at buying stock)

[KingOfCoders]

You can't buy cheap houses when everyone wants to sell and there are loans. But if you are rich, you buy when everyone sells.

[vintermann]

Piketty's point in a nutshell, wasn't it? Only he talked about it in terms of insurance.

[caeril]

> One of the best things when you are rich, you can buy when everyone wants to sell, and sell when everyone wants to buy.

Generally untrue, since most rich people hold their assets in what's being sold. There are a handful value investors left, who bother holding cash equivalents when PE ratios get absurd, but they are few and far between. Tech billionaires, in particular, are very unlikely to be sitting on much cash.

[KingOfCoders]

"Generally untrue"

I know several people who bought vast amount of real estate during the financial crisis.

You don't need to "sit on cash" to buy things.

[hackernewds]

transfer the basis to whom? better not inherit anything

[Shaanie]

If I buy something for $10 and it's worth $10,000 when you inherit it, you should (obviously?) be taxed on the increase in value from $10 -> $10,000 if/when you sell. The purchase price shouldn't be "reset" to $10k.

It'sutterly insane to me that the step-up basis exists in the US, it's such an obvious loophole that can fairly easily be closed without many adverse effects.

In my country (Sweden) if you don't know the purchase price, you can use an approximate purchasing price (e.g. for equities you are allowed to assume that it was acquired for 20% of the current value, so you'd be taxed on 80%).

[koolba]

> If I buy something for $10 and it's worth $10,000 when you inherit it, you should (obviously?) be taxed on the increase in value from $10 -> $10,000 if/when you sell. The purchase price shouldn't be "reset" to $10k.

There’s nothing “obvious” about tax policy. It’s an arbitrary determination of what’s in and what’s out.

Taxing capital gains at all is not “obvious”.

Taxing transfers of assets to your children, whether it’s while you’re alive or after you die is not “obvious”.

> It'sutterly insane to me that the step-up basis exists in the US, it's such an obvious loophole that can fairly easily be closed without many adverse effects.

The same law is the one that lets the surviving spouse or children to continue to live in a home rather than be forced to sell due to a sudden realized capital gain. You can argue that you don’t care about keeping multi millionaires in their childhood homes after their parents die, but it’s hardly “obvious” that it should be taxed.

[NotYourLawyer]

Getting rid of the stepped up basis doesn’t require that we realize the gain at death. Just transfer the basis to the heirs, and if/when they sell, then realize the gain.

[impossiblefork]

Yes. As a Swede, I don't even think of individual ownership of assets.

I see a line of descent as the unit which holds property, rather than individuals from that line, and from that PoV inheritance tax of course makes no sense, but similarly, disinheriting somebody, and some other notions, don't make sense either, so it's a different perspective.

I think the Swedish state actually takes my perspective on this, because in Swedish inheritance law you can't disinherit somebody, and we don't have inheritance tax.

[8note]

I think you've misunderstood what they're suggesting - they're considering the transfer from parent to child to not be a realization, so there's no taxes, and no change in basis.

The child who sells the house, then has to pay gains from when the house was first purchase, rather than against the value when they inherited it

[mschuster91]

> The same law is the one that lets the surviving spouse or children to continue to live in a home rather than be forced to sell due to a sudden realized capital gain. You can argue that you don’t care about keeping multi millionaires in their childhood homes after their parents die, but it’s hardly “obvious” that it should be taxed.

Well, "homestead" exemptions are usually already a thing in most countries' inheritance laws. There is no need to draw stocks into the mix.

> Taxing transfers of assets to your children, whether it’s while you’re alive or after you die is not “obvious”.

It actually is obvious, at least if you want to prevent a return of feudalist eras.

[echoangle]

> The same law is the one that lets the surviving spouse or children to continue to live in a home rather than be forced to sell due to a sudden realized capital gain. You can argue that you don’t care about keeping multi millionaires in their childhood homes after their parents die, but it’s hardly “obvious” that it should be taxed.

So make an exception for a single home the inheritor personally lives in and tax everything else.

[Hikikomori]

Is it obvious that we should have roads, running water, someone that builds up the basics of society?

[carlosjobim]

> It's utterly insane to me that the step-up basis exists in the US, it's such an obvious loophole that can fairly easily be closed without many adverse effects.

Who do you think writes the laws and the tax code?

[presentation]

Yup, here in Japan inheritors have to pay 10-55% (progressive based on the amount) of the value of all inherited property globally within 10 months.

As an American, knowing that I could have gotten away without this tax had I decided not to live in Japan long-term, and knowing that I will have considerable inheritance when my parents pass is a bit of a downer; but logically speaking, the step-up basis loophole is BS and it probably ought to be this way, or some variant of it, everywhere.

[mackman]

If you exceed the inheritance tax exemption then you are taxed on the $10k so LTCG would be double taxing. You could argue that the inheritance tax should have a much lower exemption but double taxation is harder to justify.

[vel0city]

> double taxation is harder to justify

Bullshit. "Double taxation" is such a weak argument to me.

When I buy gas at the pump it's taxed multiple times. State sales tax. City sales tax. Federal gas taxes. State gas taxes. Quadruple tax on me there.

My wage income has several taxes. FICA taxes. Payroll taxes. Federal income taxes. Potentially state income taxes. Potentially city income taxes.

When I pay for a hotel there's often a bevy of different taxes on that. When I pay my phone bill there's a bunch of different taxes on that. Even getting a drink at a bar there's a sales tax and a liquor tax.

And all of that is on money I've already paid all those several income taxes on, so it's really all just stacking there.

Oh but boo hoo ultra wealthy get their massive inheritance "double taxed". Get bent crying over your "double taxed", I'm quadruple taxed and more all the damn time. Weak argument.

[cool_dude85]

What is "double taxing" and why is it bad?

[nobodywillobsrv]

Why should you be taxed on it at all?tax is policy. You tax things you want people to consume less of.

Inflation makes nominal values to up.

More inflation more capital gains. Gov is now incengltivized to inflate to pull tax out of realized assets that have not even gained real value

[scotty79]

What you tax is not really relevant as long as it doesn't disrupt some activity you want to continue happening. If it was up to me I'd tax spending not income. Regardless of what you are spending on. Bread? Sure! Employee? Yes! 10% of Tesla? Same!

[zeroonetwothree]

You still need income to pay the interest.

Moreover, unless you are nearly dead, it doesn’t make sense to optimize for far off estate tax avoidance since (a) you will be dead anyway, (b) tax laws change all the time, and (c) it would have to be discounted appropriately so it may not even be a win.

Personally I think we shouldn’t have capital gains taxes at all so this avoidance method doesn’t bother me.

[gambiting]

>>Moreover, unless you are nearly dead, it doesn’t make sense to optimize for far off estate tax avoidance since

It's the other way around. This strategy allows you to not pay any taxes during your lifetime, so you have more money to play with and enjoy. Your inheritors might not have to pay tax on this money, but that's not your concern because like you said - you're dead at this point.

[creer]

> avoid paying taxes altogether

At some stage in wealth, perhaps, and not avoid but postpone. More important probably are cases where actually selling the shares means giving up control over a business, or having to settle things with the rest of the family whose "destiny" it is to hold these shares in common.

[deepsun]

Not postpone -- avoid. The base price of the asset is adjusted at the time of your death, so if bank sells the asset immediately, they pay no taxes.

https://www.reddit.com/r/BuyBorrowDieExplained/comments/1f26...

[creer]

There is confusion between capital gains tax and estate tax (and estate planning devices like trust law). And that matters.

Is the problem capital gains tax as some people claim or is it elsewhere?

In the process described, capital gains tax is not even postponed (and that write up does not provide for Peter's major expenses during life). That write up works (when it does) because of bypassing estate tax.

The need for realizing capital gains is eliminated through trust, estate planning and other estate tax law (seems to me). The whole of the procedure is in that side of the equation. Not in capital gains tax law.

So the question: Does this all call for a change in capital gains tax law or changes in estate planning (trusts) and estate tax law?

When you use margin loan or pledged assets lines of credit, you are postponing. Which you can potentially kick all the way into estate tax (which your estate may pay if it's large enough). That write up is different still and describes working around even that estate tax. And then the question does matter of which law you are asking to change. (Besides the traditional method of making a law, any random law, thereby solving all problems for eternity - or at least gaining some voter satisfaction.)

[deepsun]

Yep. The link above says:

> The conventional wisdom is that you can avoid income tax (via the basis adjustment at death) or you can avoid estate tax (via lifetime gifting and estate freezing strategies) but you can’t do both. This conventional wisdom is wrong, and I’ll explain why below.

[scoofy]

No.

[refurb]

This sounds like a great idea but really fails the sniff test:

- you’d need to borrow for decades, where, even at low interest rates were burn through significant capital (more than taxes would)

- you’d need low interest rates to exists for decades which we know doesn’t happen

- finally, all these Uber rich (Bezos, Musk) have all sold significant portions of their equity and paid taxes on it

This seems like nothing more than a hypothetical idea.

[SuchAnonMuchWow]

The article goes into great detail and gives several example of several CEOs borrowing for actual decades, so it passes the sniff test because it does actually happen.

[silotis]

The article gives examples of CEOs borrowing against their shares. The article provides no examples of CEOs rolling those loans over until their death.

[technothrasher]

> Only very, very rich people pay any estate taxes in the first place because a couple's estate tax exemption is currently over $27 million.

That's federal estate tax. State tax can be different. Massachusetts, for example, has estate taxes on over $2M ($4M for a couple who manages their estate plan wisely).

[potato3732842]

State estate tax is just a tax on people who are ignorant of it, unwilling to plan for it or who's relationship with their heir(s) is too dysfunctional to dodge it. The rich almost always avoid it. The poor are never subject to it.

It's like greasing a couple rungs in the middle of the economic ladder IMO. I'm not a fan.

[vel0city]

Massachusetts requires estates worth $1M+ to report for estate taxes. There's something like a $60k exemption and then it's a progressive rate system.

Based on what I'm seeing, a $2M Massachusetts estate would have $50k of estate taxes to pay, a 2.5% effective tax rate.

In the end though only 12 states have an estate tax, and Massachusetts has the lowest threshold and highest rates.

[atmavatar]

Borrowing against the current value of your stocks should automatically cause any gains to become realized for tax purposes.

[valval]

Funny that you’d take this route. I’d just lower capital gains tax rates.

[Zenzero]

At the time the estate tax is being considered isn't that usually down to a single surviving individual? I imagine it's uncommon for a couple to die at once to qualify for the 27m exemption.

[NotYourLawyer]

You don’t have to die at the same time. If you leave everything to your surviving spouse, it’s also possible to transfer the benefit of your remaining estate tax exclusion.

[hn_throwaway_99]

Search for "estate tax exemption portability".

[nobodywillobsrv]

Yes but that is because taxes are incoherent and abhorrent

Why do we tax realized capital gains at all and why based on the ruler of fiat which is controlled by those who tax (they keep making the ruler shorter)

If the goal is to creat drag on multiplicative dynamics then do so coherently

Tax should make sense at least in core targets. Yet there are no core targets.

[CPLX]

Because realized capital gains are income and we tax income.

[dataflow]

This explanation never made sense to me. Say someone gives you a $1M loan. Holy cow, it's not taxed, what a loophole!

But wait, this was a loan, not a gift. So don't you eventually have to pay back the >$1M later from taxed income? So you still end up paying taxes on $1M either way? How in the world does this bypass taxes?

Edit: To people bringing back the "buy, borrow, die" story:

(a) Yes, I saw that a couple months ago too. It was very hand-wavy in some crucial places. And there were quite a few people pointing out flaws with the reasoning. [1] [2]

(b) If dying is part of the the strategy then why is it omitted so often? (My whole point with the comment here is that the aforementioned explanation is inadequate.)

(c) If having enough money to pay off your collateral-secured debts until your death is a requirement for this to work then why do so many people claim "you can do it too"? Who has that kind of money sitting around? The "Buy, Borrow, Die" post explicitly said you can't get that kind of loan until you have $300M in assets.

[1] https://news.ycombinator.com/item?id=41411737

[2] https://news.ycombinator.com/item?id=41410808

[lesuorac]

You just delay selling the stocks until death.

At that point your stocks (and other assets like houses) have their cost-basis adjusted to the current price. So the capital gains tax on your assets are $0 as their cost basis is the same as the price so the appreciate is $0. If _you_ sold the stocks before your death then likely there would be a large gap between the cost-basis (price you bought the stock) and the current price resulting in a large capital gains tax.

So, when your estate sells the stocks to pay back the loan they pay the applicable taxes on the $0 and then uses the remaining proceeds to pay back the loan.

[blast]

> At that point your stocks (and other assets like houses) have their cost-basis adjusted to the current price.

Is this a special provision that kicks in only on death (and not before)? How long has that been in place?

[mikeyouse]

It’s called the stepped up basis and yes, only applies to your estate.

A married couple who bought a house in Palo Alto for $250k that’s now worth $5.25M and who bought $250k of Apple stock that’s now worth $20.25M would have a Federal tax bill of ~$5 million if they sold those assets and gave the cash to their kids. If however they were hit by a bus on the way to their accountants office, and the kids inherited the assets and sold them the next day, they would owe zero tax.

There’s a popular myth that estate taxes are a second tax on income but many assets for the very wealthy are never taxed..

[PaulDavisThe1st]

This is because for a long time, the USA does not tax assets other than real estate.

Our tax system is structured around the fundamental idea of taxation occuring on transactions, whether that's income in exchange for labor, income resulting from the sale on (non-real-property) assets etc.

I'm not sure if this is a good thing (it might be, it might not) but it's the way it is.

[bruce511]

The reverse approach has issues as well, primarily for assets that aren't easily divisible.

The obvious example is family farms, or indeed the family house. Capital taxing the asset on death means a (potentially large) tax bill happens in many cases this can't be paid without selling the asset.

If the sale was to another family looking for a farm, then that could be argued is neutral. But it won't be. It'll be sold to a mega-corp because they have more money to spend. So in a couple generations you kill off areas that are primarily small farms.

This doesn't just apply to property. The family silver collection, the family business, the list goes on.

Inheritance tax is tricky. Just passing money down entrenches an aristocratic class. Taxing it though destroys value in all kinds of areas.

[Panzer04]

It's mostly practical, I think. Not all assets can be valued, or are liquid. Once a transaction occurs though you have both a price to tax on and the money to pay the tax.

[mixmastamyk]

^^^ This is the real loophole, the rest is a distraction.

[JumpCrisscross]

> Is this a special provision that kicks in only on death

To my knowledge, yes [1].

[1] https://en.wikipedia.org/wiki/Stepped-up_basis

> How long has that been in place?

Since 1921 [1]. When the estate tax was in force, it was meant to avoid double taxation. In 1976, the Congress replaced the step-up basis with a carryover basis (you don't pay taxes on death but neither do you step up the basis). In 1980, it repealed the carryover basis "due to the record-keeping problems associated with reconstructing what a long-deceased relative might have paid for properties that had been held for generations," but didn't re-instate the step-up basis. In 2010, the estate tax was repealed. (EDIT: It was reinstated in 2011 in a neutered form [3].)

[1] https://en.wikipedia.org/wiki/Stepped-up_basis

[2] https://greenleaftrust.com/missives/stepped-up-basis-a-short...

[3] https://itep.org/federal-estate-tax-historic-lows-2023/

[PopAlongKid]

The Wikipedia article does a poor job of explaining that it is not "step up basis", it is "basis adjustment to fair market value", which may be up or down. They do have a paragraph further down about "stepped down basis", but it still doesn't make the point clear.

[PaulDavisThe1st]

The USA still has an estate tax.

[JumpCrisscross]

> USA still has an estate tax

You're correct. Fixed. Would note that it's famously flouted, though usually not in entirety [1].

[1] https://www.bloomberg.com/view/articles/2014-01-30/only-idio...

[js2]

Yes. It's been part of the tax code since 1921.

https://www.fidelity.com/learning-center/personal-finance/wh...

https://greenleaftrust.com/missives/stepped-up-basis-a-short...

[PaulDavisThe1st]

> the current price resulting in a large capital gains tax.

There's nothing special about the capital gains tax rate on such a sale. It's likely to be the long term one, and compared to income tax and taxes in most other parts of the world, it's low.

[cryptonector]

> But wait, this was a loan, not a gift. So don't you eventually have to pay back the >$1M later from taxed income?

No, you just borrow against yet more stock. You need never sell any, much less pay yourself any significant income, provided you have enough stock. Since you don't sell the stock, you need not pay capital gains taxes. Since you have no real taxable income, you need not pay much in income taxes either.

[attentive]

Pay taxes once vs pay interest forever? At what point it'll break even and go negative?

[cryptonector]

Let's say you're worth $100bn. You don't need to spend $1bn a year, just even a few tens of $ millions will be plenty, so you're borrowing a minute portion of your net worth. And your stocks will be going up in value, typically, so... you'll never run out of money. Plus you'll be a great customer for the banks that lend you money, so you'll get preferential interest rates. You'll never run out of money. You'll die and still have the lion's share of your wealth, only now it will pass to your heirs and charitable foundations.

[chii]

> You'll die and still have the lion's share of your wealth

and i don't see anything wrong with that at all.

It seems, recently at least, that a lot of people believe they're somehow entitled to the wealth that these high networth individuals have managed to accumulate.

[cryptonector]

> and i don't see anything wrong with that at all.

Read my comments on that post. I never said there was anything wrong with that.

IMO we should stop double taxing dividend income.

> a lot of people believe they're somehow entitled to the wealth that

Do not count me among those.

[attentive]

So, same as never selling your stock?

None of that matters. What matters, is if interests paid is more than taxes paid. Which at some point it will be. And at some point both loans and interests will be paid in full. Because its secured by stocks. And assuming there is no other assets, it'll be stocks sold and capital gain taxes paid.

Unless the argument here is that lender will be fleeced due to borrower's death. Which, if correct assumption, is fucked up.

[cko]

Let's say every year your portfolio goes up 10%. Every year you borrow 3%. You never pay down the principal, and I think you can just let the interest payment get added to the principal. Also, the interest is tax-deductible.

[bdangubic]

Buy, Borrow, Die FTW - https://equifund.com/blog/buy-borrow-die

[vineyardmike]

The "loophole" that people often complain about is specific to the "buy, borrow, die" tax exemption opportunity. And it's mostly about the VERY wealthy who can really use this until they die.

(1.1) Different parts of America have additional taxes on estate - eg. MA is $2M not $13M, - about 10% of the state has $1M today.

(1.2) Estate tax rate and capital gains rates are different.

(1.3) You can take a tax-deduction on the interest of the loan - if you use it to buy investments. Which is something the ultra-wealthy can easily do.

(1.4) Different assets (eg. Real Estate) have vastly different loans compared to Margin/Portfolio lines of credit

(2) Because the people in question are alive. If you complain about a billionaire not paying taxes because they live off loans, presumably you want that to change. No one complains that Vanderbilt isn't taxed anymore.

(3.1) You definitely don't need 300M to do it, but if you're actually part of the bottom 95%, you'd probably need to liquidate some funds to make it to death, so you can only do this with a small amount of money or you risk margin calls.

(3.2) The "big portfolio" benefit is termed loans instead of margin - banks are way more likely to give you a huge chunk of cash for a fixed time/life if you have a lot more assets.

[yieldcrv]

what you’re missing is that its not controversial or a loophole

sometimes they pay it off, they just dont have to do that every year

yes, you can do it too, but you would need income to pay it

they already have other assets post tax to pay with, if it ever comes down to that

[nobodywillobsrv]

It's leverage. That is all. And tax efficient.

[Apreche]

There is another difference that is related to risk.

Larger loans allow access to lower risk opportunities.

If I had many millions in stocks, and I was greedy for more, I would borrow against it to develop residential real estate in a high rent neighborhood. Yes, there's some risk, but it's as close as you can get to buying a money fountain. I'd be very confident that the rents from the building would pay back the money I borrowed and then some.

Even if I borrow against all my holdings, I can't afford to make that kind of investment. The only options I have are much higher risk. And as you said, I won't survive a failure. Therefore, while the bank would let me do it, I would be very foolish to try.

[bruce511]

I've owned property to rent in the past. I feel it's worth pointing out to folks keen on this route that, while profitable, it's a Lot of work.

Owning stocks is zero effort. You might glance at your results from time to time. Your fund manager does the heavy lifting (and gets a small % fee for it.)

Owning a property is a pretty constant stream of work. Organizing maintainence. Dealing with complaints. Occasionally evicting non-payers. Finding new tenants. Filtering applicants to filter out the non-payers.

It's so much work you'll likely offload this onto someone rise to do. The cost is not insignificant. (Neither is maintainence.)

The returns may be good, but its not "passive income".

[throwaway2037]

I agree with most of your comments. However, most tax authorities in highly advanced countries view income earned from rental property as passive income, regardless of how much work you need to do. This might be some minor deductions if you act as a real estate agent, but that is a lot of work in most jurisdictions, as real estate agency is normally a highly regulated area of work.

[chgs]

Indeed. Passive income is taxed at a much lower rate than working income in the U.K, and that includes property rents (after paying expenses like a managing agent) and dividends

Capital gains is taxed even lower than that.

[yzydserd]

> Passive income is taxed at a much lower rate than working income in the U.K, and that includes property rents (after paying expenses like a managing agent)

Is that right? I thought that income from property rents (after paying expenses like a managing income) had income tax levied like any other income.

[chgs]

But honest day’s work income has an additional payroll tax which totals about 20% marginal for the majority of people (plot about 60/40 between employer and employee).

Far better to be paid in shares.

[bruce511]

For many reasons, including tax and liability, any serious property owner will have a company structure to own the building, collect rent, pay bills etc. Doing it in your personal capacity is pretty insane.

So yeah, you have all the paperwork to run the business as well.

[throwaway2037]

"[S]erious property owner" -- This phrase sounds like a "no true Scotsman" test. What exactly qualifies as "serious"? I know numerous people who own a bunch of properties and don't have a separate company structure, as there is no tax advantage (in my jurisdiction). They use local real estate agents to find new renters when old renters leave. It's pretty simple. And, the agent also coordinates monthly payments (to the owner) and any repairs.

[chgs]

Or you just pay a property management company, which comes off pre tax.

[RickJWagner]

I had a friend that bought a second house as a rental.

One day he described what happened when his renter left. They had money troubles, so they quit paying bills (including the rent). When they were evicted, he found that they had been throwing their garbage down the stairs into the basement so they didn't have to pay the trash service. The stench was unbearable, and the mess horrendous.

It is not easy money to be a landlord, I figured.

[dullcrisp]

Wanna go halfsies on some residential real estate in a high rent neighborhood?

[throwaway2037]

Everything that I read about real estate investing says you should aim for middle class housing, as the return-on-investment from rental cashflow is (normally) higher that more expensive housing. To be clear: My statement is only looking at rental cashflow, not capital appreciation. To me, there are both important, but separate concerns.

[Apreche]

Sure, but we'll have to go thousandsies, or at least hundredsies.

[tightbookkeeper]

Rich people having more options, and being more insulated from risk, is not news.

[Apreche]

It's not news to the world, but it's news to many.

[tightbookkeeper]

I don’t think so. Stronger and attractive people have more options and opportunity too! This is the kind of thing you can’t lose sleep over.

[beezle]

Keep in mind that the bench mark rate is almost always something akin to bills so is a very short time horizon. That may be great or not so great compared to what rate you might get on say a 5/10/15 yr collaterlized loan.

ref: https://www.interactivebrokers.com/en/trading/margin-rates.p...

[throwaway2037]

Nice link. Thank you to share. This notice bothers me a bit:

    > IBKR will assess a surcharge of 1% on large loan balances unless otherwise prearranged with IBKR. The 1% surcharge would apply to all balances in the highest tier.

I wonder what exactly "prearranged with IBKR" means. Call them up... "I need to borrow 50M USD, and pledge my Meta stock." Them: "Hang on. <muzak> Yeah, sure."

My guess, if the loan is large enough, the want to coordinate with their internal stock-borrow lending (SBL) desk to ensure proper liquidity.

<<(Not A) Shill Warning>> I am continuously blown away by the institutional-like level of services (and prices) available to plebs like me. IB is really built to grow with you: From the first 10K USD saved as a 25 year old, to a 50 year old with millions in liquid assets. I still cannot believe they don't have any minimum balance for individual account. Ref: https://www.interactivebrokers.com/en/accounts/required-mini... To be clear for other readers, that cost cannot be zero on their end. I don't know how it works, other than crazy levels of automation.

[beezle]

For many things, IB is great. Certainly if you are a futures trader it is very good, same for most equity/option trading. But for bond trading, expect a complete nightmare at tax time. Their "tax department" has no clue how to properly and consistently amortize bond premiums and quite honestly (personal experience) does not give a rats.

[throwaway2037]

    > bond premiums

Does this mean you are buying bonds with a price greater than 100%? If yes, can you explain why? On the institutional side, there is an allergy to premium bonds; they only want to buy at par (100%) or less, so normally the coupon rate is adjusted just before issuance to meet their needs.

[tomatocracy]

I think it's probably more about hedge funds etc where they will negotiate bespoke terms/pricing across the board (including assessing risk which at that level might partly be based on track record, identity of the underlying investors, strategy etc).

[beezle]

Once the amounts get lumpy there needs to be complete assessment of counterparty risk (you). IB can't assume that you are only borrowing from them and that the collateral in your account won't first be liened by another party, etc.

[traceroute66]

> The framing is deceptive.

Indeed the framing is very deceptive.

Yes, it helps to have a relationship with a private bank. But as pointed out, some brokerages will let you do it too if you are too poor to be allowed to enter through the door of a private bank.

BUT

The main thing that is skirted around in the article is that it still needs to go through the financial institution's credit committee.

So, for example, you cannot just rock-up with a million in Tesla shares and expect a loan against them, or at least not at a sensible LTV ratio.

The financial institution will want a boring portfolio with government bonds and low-risk corporate shares.

Any bank that would be willing to lend against a high-risk portfolio is probably not the sort of bank you want to do business with anyway.

[SomeHacker44]

This is not true: "very low rate." My brokerage starts at 12+% which I would not call low. It never even reaches prime at millions of borrowing, and I do not have remotely enough to get much better a rate.

[kman82]

Wrong brokerage. Interactive Brokers lends at 5% on large amounts and around 6% on small amounts.

[dranudin]

You can also lend money from the options market with a box spread for around 4-5%. See e.g. boxtrades.com

[red-iron-pine]

options are a whole different box of worms, and playing that game has a lot more risk.

"but uh its a box trade it can't go wrong because bla bla bla bla" -- then things proceed to go wrong

[htrp]

you need to look at the Lombard landing products offered by banks, not margin loans on brokerage or personal loans

[mixmastamyk]

Interesting... https://en.wikipedia.org/wiki/Lombard_banking

[s0rce]

I used this when Chase closed my bank account because of a typo. Just borrowed cash from Fidelity to float for a month until everything got sorted.

[chx]

It's not at all simple what they do.

https://reddit.com/r/BuyBorrowDieExplained/comments/1f26rsf/...

Important quote:

> this type of planning is generally not economically feasible unless the taxpayer has a net worth exceeding around $300M.

[creer]

To be fair, there are very accessible options like margin loan or pledged assets which you can also keep going indefinitely - possibly all the way into estate tax which - as a "little guy" - you wouldn't owe. They are higher interest rates (to the point of not being all that interesting - depending on what you want to do.) And they don't have the same features.

But if you are high assets and low income, they might still allow you to buy a house with a loan - if it's what you want.

[theshrike79]

You can also buy art.

  1) buy a painting for X
  2) have it evaluated, sometimes the price is higher than X
  3) put it in storage or a tax loophole between countries
  4) use said painting as collateral for low interest loans

Now you have money to invest, as long as you make more than the low interest loan, you're making profit.

[Shaanie]

But then you have X money tied up in some presumably illiquid art with questionable value. Seems better to just invest the X money from the start.

[theshrike79]

Art is like Schrödinger's cat, its value is only determined when it changes owner.

If someone pays 1M€ for a piece of art, it is "valued at $1M" and you can use it for collateral for a loan at some percentage of its valuation.

Will it actually be 1M€ if it needs to be liquidated? Nobody knows. It can be worthless or it can be worth 10M€ - it all depends on what the next person is willing to pay for it. But until that point it's "worth" 1M€.

---

This is why there are so many empty (commercial) properties, they were valued at a specific €/m2 price and were used to take loans based on that value.

Until they're rented/leased again, that is their worth and value. Could the owner get someone in the property by lowering the price? Definitely.

Would that also cause a rolling cascade of loans not having enough collateral to back them up? Yup.

[ThinkBeat]

but then you do not get the tax benefits discussed above.

The market for "investment art" I huge and everyone involved has an upside by art appreciating in value.

> The artist may get more money (since the artist only gets paid in the initial transaction the artist may only get a fraction of the value as it increases. The artist may find that later work will become more valuable as other investors want more of his art.

>The gallery gets more money, and it may attract more art investors

> and the auction house gets more money if it ends up there.

How much art is worth is difficult to estimate on its own. I mean a white canvas painted uniformly white is worh a lot of money if a famous artist does it.

It is worth entirely nothing if I do it.

I expect then that the market decides the value. All investors want art to get more valuable and are in on it.

As an art lover, this is such a tragic scheme. Unknown amount of art that will never been seen by the public. Locked up inside a storage facility in a big box Often the investor has no interest in the art at all, just an investment made by some form of a broker.

[gadders]

>> 3) put it in storage or a tax loophole between countries

I think some of the Swiss Freeports would be up there with some of the world's best museums: https://medium.com/@girivasishta07/switzerlands-freeports-se...

[kwere]

there was a loophole that allowed wealthy people to donate to museums works of arts in exchange of a write off on the value of the artwork. to limit abuses they patched it so that you can writeoff only the purchase price not the market value. I heard a workaround is having living artist create a artwork directly for you and getting it appraised to a crazy amount for writeoffs.

[jjav]

> your brokerage will lend you money at a very low rate, secured by the equity

I have not found one that will offer a very low rate, have you?

For example here are Schwab's rates for a loan against equity:

https://www.schwab.com/pledged-asset-line/rates

For 500K-1M rate is SOFR + 3.4%, so about 8.2%

For multimillionaires it gets better at SOFT + 2.4%, or about 7.2%

Not bad in this market but not one I'd call "very low"

Possibly there's an unpublished rate for billionaires, there usually is.

[ywvcbk]

Switch to a different broker? e.g. it’s just +0.5%

https://www.interactivebrokers.com/en/trading/margin-rates.p...

[jjav]

The linked page is margin, not equity backed loans.

[ywvcbk]

Is there a difference?

[Kon-Peki]

Yes. In a margin loan, the "things of value" never leave the institution handing out the loan. The borrower buys stock, for example. And the institution giving out the loan has the right to sell whatever you bought to prevent losses on the loan, without your permission if certain conditions are triggered.

In a loan backed by collateral, all the money can leave into some external account controlled by the borrower. To get some or all of it back requires an expensive and lengthy process that doesn't guarantee success.

[ywvcbk]

IBKR claims that you can establish a margin loan by:

“Withdrawing funds in excess of settled cash in the denomination of the currency being withdrawn;”

So as long as you have enough collateral it’s effectively the same?

[FireBeyond]

I think Adam Neumann and a couple of others notably got zero interest loans from banks from the bank wanting to court their business income too.

[nicolas_t]

My bank in Hong Kong (where I live) lends in USD against bonds or stock at around SOFR. If they lend in JPY it's around 0.8%

[creer]

Your brokerage will likely lend you money but you will be disappointed by the rate. It is not "very low". Not even "low". At least not where we are now in the interest rates cycle.

[christophilus]

Interactive Brokers is 6%. Not low, but not bad.

[creer]

5.8 - 5.6% above 100k now indeed, and that's for margin (which you can live on OR re-invest)! Not low but improving yes!

Roughly in line with a 15 yr fixed rate mortgage but not tax deductible at least if you live on it. Might be tax deductible if you re-invest.

[tomatocracy]

For very large stakes, the terms tend to be much more bespoke though - an automatic sale of collateral amounting to a large % stake is probably not in either borrower or lender's interest.

[petermcneeley]

If I have 1 million in some stock can I go get a 1 million loan from the bank with this as collateral? If so can I reinvest this million in the same stock again and then goto the bank again etc?

[kelnos]

Usually they will not give you the full value. Depending on how "safe" they deem the security, they might only allow you to borrow 50%-70% against it.

And most (probably all) of these forbid you from using the loan proceeds to buy more securities.

[basementcat]

There is usually a margin requirement (25 to 75% depending on type of equity). And yes, you can.

[blasphemers]

No. You are not allowed to use these loans for investments, you would need a different type of loan for margin trading.

[yieldcrv]

Your broker isn't letting you withdraw margin lending. You cant use it for consumptive purchases.

But its true, you can find a real lender for your stocks. You dont have to be rich.

Its not controversial, you have to pay it back. There are other quirks the rich have:

Already post-tax assets to pay something off

They are in control of the stock, they can issue more new shares for themselves or cause the corporation to do a stock buyback to pump their holdings more if market conditions are favorable.

Borrow more against the increased value or just sell something and pay the taxes that year.

Purchases of primary issuances are taxed differently than secondary market purchases.

But who cares when you can be a neocolonialist for a year in Puerto Rico too, 0% capital gain for new positions and prorated against old ones

[JumpCrisscross]

> broker isn't letting you withdraw margin lending. You cant use it for consumptive purchases.

There is no rule prohibiting the withdrawal of margin cash. Or, for that matter, short selling and withdrawing that cash. As long as you're Reg T compliant, the Feds don't care. (If you're a family office, even better--you might get to be treated as an institution.)

[yieldcrv]

right, it just hampers the broker’s collection efforts and economic viability if things leave their walled garden

good to know there is no statutory road block

[mixmastamyk]

Yes, margin can be dangerous at times and is not that cheap. About 6% over fed rates, or 11-13% right now. Over $500k you'll probably get a better deal.

[TMWNN]

What taxman22 says makes me wish I kept my holdings in my Schwab account. (I guess there is nothing stopping me from doing an asset transfer.)

But I agree with you about margin borrowing's interest rate not being that amazing, although it is of course cheaper than most credit cards. Vanguard is, as you said, 11-13%. <https://investor.vanguard.com/client-benefits/margin?msockid...> By contrast, my Amex line of credit charges 6%, and I am preapproved for an Amex personal loan for 8.98%. I presume others on HN can get comparable or better.

[ywvcbk]

It’s like people complaining about savings accounts with 0.5% interest rates. Just switch to a different broker…

IBKR is +0.5% at >$200k (It starts at +1.5%)

[taxman22]

Schwab Pledge Asset Line (PAL) is SOFR + (2.40% to 4.4%). SOFR today is 4.81%.

[TMWNN]

Is Schwab known for being unusually low with its rate for this product? Vanguard is 11-13%, consistent with what mixmastamyk said. <https://investor.vanguard.com/client-benefits/margin?msockid...>

In any case, my Amex line of credit charges 6%, and I am preapproved for an Amex personal loan for 8.98%. I presume others on HN can get comparable or better.

[JumpCrisscross]

> Is Schwab known for being unusually low with its rate for this product?

The Schwab rate sounds high. Fidelity, for instance, charges SOFR + 190 to 310bps [1]. I haven't had an SBLOC for a few years, but I remember Stifel charging no more than 200 bps over Libor.

[1] https://www.fidelity.com/lending/securities-backed-line-of-c...

[mixmastamyk]

8ish percent is good but not fantastic, after years of mortgages lower than that.

[dang]

Ok, we've replacing accessing billions by borrowing against stock in the title above. Thanks!

[bdangubic]

> If you own stocks, your brokerage will lend you money at a very low rate, secured by the equity - typically up to about half of your stocks' worth.

This should be illegal of course... You cannot for the purposes of paying taxes say "hey, I don't actually have this money, this is unrealized gains" and then turn around (to brokerage house or anyone else) and say "hey, look I actually do have this 'money' - lemme borrow against it."

Unrealized gains should never be taxed. However, as soon as you try to use it as realized in ANY way you should be taxed immediately.

[1123581321]

That does not track for me. If someone has $20k in Schwab and chooses to use their credit card instead of selling stock and paying cash, I don't think they should have to pay taxes on that or suffer a criminal penalty. Same for taking on a car loan or a mortgage.

[creato]

If that's what was happening you'd be right but it isn't. Credit cards have high rates and low limits for a reason: they are unsecured credit. Loans with collateral are secured by the collateral, and it makes some sense that should be considered a realized gain for that collateral (or loss for that matter).

[__turbobrew__]

My bank will give me a 6 figure line of credit at prime+0.5% because they see all the assets I have (savings, cash, investments, mortgage). The line of credit is indirectly secured against all of the assets my bank can see.

Should I be taxed when I use the line of credit my bank extends to me?

[JumpCrisscross]

What OP is missing is the role of collateral. It becomes more important the more perilous the borrower is or might be.

Apple borrows for 20 years unsecured at 31 bps above the U.S. [1][2]. That wouldn't contract much if they offered collateral, because the difference in relative risk is modest to the point of immateriality. Similarly, someone with a century of living expenses in marketable securities really only needs to be restricted from blowing their stockpile--other risks are absorbed by that wealth.

TL; DR The rich don't need collateral as much as the middle class and poor. Penalise the use of collateralised loans like that, and you just make collaterised lending go away or become much more expensive.

[1] https://www.bondsupermart.com/bsm/bond-factsheet/US037833AT7...

[2] https://home.treasury.gov/resource-center/data-chart-center/...

[bdangubic]

> TL; DR The rich don't need collateral as much as the middle class and poor.

You really buy this? Elon could just go fetch $44bn from a bank to buy Twitter without anything to back it?

[1123581321]

No difference if secured. You could add to my list of examples a home equity loan. Should that be taxed as a partial sale of the house? No.

Ask your credit union about the variety of loans they offer to regular people.

[gpderetta]

It gets more complicated. If you remortgage an house, should you pay CGT on any unrealized increase in value?

[eadmund]

Why should it be illegal? It’s not a realised gain. It has to be paid off … with money which has to come from somewhere (and be taxed as income or realised gains or whatever).

What reason do you have for wanting it to be illegal, other than not liking it?

[bdangubic]

How is it not realized? When I can use it as "realized" to borrow against it? When it comes to paying taxes I go "sorry Uncle Sam, this is fictitious, I don't really have this" but then I head over to the bank and go "look at my brokerage accounts, I have ALL THIS MONEY, lemme borrow against this now all-of-sudden realized money..."

[WillPostForFood]

Home equity loans also taxed as realized gains?

[bdangubic]

You are paying property tax on that money you are using for that HELOC.

If I bought a house at $300k, I owe $250k and house is now worth $750k the County will be slapping me with $10k/year property taxes whereas before I was paying like $3k. My gains are realized each year via property tax assessments :)

[jjav]

> My gains are realized each year via property tax assessments :)

You are confusing two very different things. You'll realize the gains (and have to pay taxes on) your house value increase only when you sell it. The fact that you were paying property taxes on it all along while owning it has nothing to do with that.

[JumpCrisscross]

> My gains are realized each year via property tax assessments

This strongly depends on jurisdiction. In many (today I learned, not all) assessed value is explicitly different from market value.

[eadmund]

> How is it not realized?

Because of the definition of what realized income is. Borrowing is not income.

You mention below that you own a Washingtonian condo and a Virginian home. Let’s imagine that they are both $100,000 and that you have no other money or debts. Your net worth is thus $200,000.

You go to your bank and say ‘I would like to borrow against the value of my assets please,’ and they say, ‘certainly, here is $90,000.’ Your bank account now goes up $90,000, your condo is still worth $100,000 and your home is still worth $100,000. Your net worth is still $200,000 (not $290,000) because you also now have $90,000 of debt. You did not realise any income, even though your bank account is now full of money, because your debt account is now negative.

‘But I am paying property taxes!’ you might say. Sure, property taxes are a form of wealth tax, and there is no similar tax on stocks — but that is irrelevant to this discussion (although it could be relevant in a different one).

To illustrate why, let’s use another example. You still have the Washingtonian condo and the Virginian home, and they are both still worth $100,000 apiece. This time, you only borrow $45,000 against the value of the condo. That money moves from a bank on Washington to your bank account in Virginia. Do you owe Virginia income tax on that money? No, because it’s not income. But Virginia is not getting paid any property taxes for the property backing that loan! Irrelevant, again because a loan is not income.

Likewise, you can imagine owning another property in some state or country without property taxes at all. You borrow against it, is that loan income? Nope.

Now, let’s imagine the counterfactual, where loans count as income. You go to buy your $100,000 condo, put down $20,000, borrow $80,000, spend all $100,000 on the condo — and now you would owe income taxes on that $80,000. Gosh, that doesn’t seem fair. You had $20,000, spent it all borrowed the rest, and now you own a condo, owe property taxes and owe income taxes on $80,000, even though you have no money.

Does any of this help you understand? Owning an asset is not fictitious, it’s just not income. An income tax is levied on income, so an asset is not relevant to an income tax (relevant to an asset tax, of course!).

[gpderetta]

Well, taxing borrowing as income is not what is being discussed here though.

It would be workable to make borrowing against an asset at a certain value equivalent to crystallizing any gain on that asset, pro-rated on the amount borrowed: you own a 2M house, that you paid 1M. You borrow 500k against it, it would be as if you sold 1/4th of it and you would pay CGT immediately on the 1/4th of (2M-1M); the basis would be adjusted so that when eventually you sell the house you pay CGT only on the yet-unrealized gain.

[JumpCrisscross]

> as soon as you try to use it as realized in ANY way you should be taxed immediately

You're trying to define a rule based on intent. That's doable. We do it all the time. But it tends to get messy, fast. How do you differentiate investment leverage from realizing gains through borrowing? If you track distributions, does a commensurate reduction in contributions count? What if the borrowing is done against the portfolio at large, or unsecured?

[bdangubic]

It is not messy at all if you use KISS. You do not differentiate ever - ANY usage of unrealized gains makes them realized. Very simple to implement but of course won't ever happen :)

[JumpCrisscross]

> ANY usage of unrealized gains makes them realized

What does "usage" mean? If you write a covered call, did you "use" the asset? If your broker lends your shares out, are they being used? What about presenting your brokerage statement as proof of assets to a mortgage banker? What about--I've done this--showing your brokerage statements to American Express to get a better rate?

I'm still only talking about publicly-traded common stock, mind you.

> simple to implement but of course won't ever happen

Possible, but stupid. You'd raise taxes on the middle class who can't afford advice (or personal attention from lenders) while doing little to those who can dance in the ambiguity offered by what seems simple from a distance but is devilishly complex up close. Because at the end of the day, what you're trying to differentiate is intent. And intent is easy to hide and expensive to uncover.

The core problem in this scheme isn't so much the deferred taxes as much as the eliminated ones: capping the step-up basis to e.g. $10mm, the EPA's statistical value of a human life, would do the trick. Unlike ascertaining "usage," whether or not someone has died is generally simple to determine.

[bdangubic]

I think this is the core issue for me in these discussion - it is not complex at all. If you sell your securities - you pay a tax - that part is simple. Until they it is "unrealized" - right?

> If you write a covered call, did you "use" the asset? Yes

> If your broker lends your shares out, are they being used? Yes

> What about presenting your brokerage statement as proof of assets to a mortgage banker? Of course not

> What about--I've done this--showing your brokerage statements to American Express to get a better rate? Of course not

> You'd raise taxes on the middle class who can't afford advice This is always funny to me, middle class :) For sure it would not affect the middle class and there.is not need to "afford advice" when there is nothing complex about this that needs an advice of anyone.

> Because at the end of the day, what you're trying to differentiate is intent Not at all, it is not "intent" at all - it is just very, very simple... You can own stock and keep it there - no problems. You want to use it for ANYTHING, you pay taxes on it.

[jjav]

> If you write a covered call, did you "use" the asset? Yes

This wouldn't make any sense, you didn't use it (unless the call gets exercised).

So you have 200 shares and write 1 call, you'd pay tax on the appreciation of just 100 shares? Then sell another call next week, pay taxes again?

> What about presenting your brokerage statement as proof of assets to a mortgage banker? Of course not

I though it was simple. Now the loopholes start to appear.

[JumpCrisscross]

> What about--I've done this--showing your brokerage statements to American Express to get a better rate? Of course not

You say "there is nothing complex about this" after conceding this loophole the size of a planet.

For starters: loan with a covenant that governs further borrowing and requires you to instruct the lender if your marketable assets fall below a certain value. Not technically secured. But not relevant if you're lending tens of millions to a billionaire--plenty of firms will provide this. Next up: loan to heirs. Next up: unsecured loans at preferential rates if you store your securities with the lender. (This is already a thing.)

> want to use it for ANYTHING, you pay taxes on it

Swapping "use" for "usage" doesn't address the fundamental issue.

[jjav]

> ANY usage of unrealized gains makes them realized

I don't feel like you're thinking this through.

Can you define (precisely enough to write into the tax code) what is "usage"?

For example, let's say I go to get a second loan for a vacation home. The Uniform Residential Loan Application asks me to list all significant assets. Such as my first house.

Am I "using" the value of my primary home? The second loan is not a lien against the first home, I'm not borrowing anything against it. They are unrelated. But the lender will probably consider my equity there as additional net worth which can be a factor in approving that second loan.

[ywvcbk]

So if you take out a small business loan and use any type of collateral you now have to pay taxes on it?

Significantly increasing the cost of borrowing for most non large companies is certainly a great idea.. it obviously won’t lead to less competition and more concentration.

> It is not messy at all

If you ignore the consequences and implications (or can’t grasp them at all) then sure..

[splintercell]

No offense, but I don't believe you understand the nuance of the thing you're talking about.

It is very easy to say 'any attempt by a murderer to flee the state, and he should be thrown back into the jail' for someone with limited education about western law and order.

This is exactly how you sound.

[bdangubic]

This is exactly what the billionaires have been able to convince the masses :) It would be "very hard, impossible" to implement a system in which you cannot for the purposes of paying taxes claim you do not have some sht while turning around and heading over to the bank to get a boatload of money borrowing against that same sht - need a genius to figure that out...

[ywvcbk]

No, the fact that your proposal isn’t thought through at all and is entirely impractical doesn’t mean that solving this problem is "very hard, impossible". That seems entirely unrelated..

[bertjk]

The key difference here is whether your investment remains at risk. As long as the value of your investment is at risk, then the investment is considered unrealized.

Once you cash in your chips (sell) then the investment becomes realized.

Someone getting a loan against their stock portfolio is still at risk of loss of value of their holdings, therefore the investment gains remain unrealized.

[ywvcbk]

What about reverse mortgages or any type of loan with any collateral? It’s more or less exactly the same..

[lxm]

What's your take than on HELOC?

[betaby]

Capital gains on a primary residence is not taxes in most the cases anyways, so HELOC changes nothing tax wise.

[gruez]

>This should be illegal of course... You cannot for the purposes of paying taxes say "hey, I don't actually have this money, this is unrealized gains" and then turn around (to brokerage house or anyone else) and say "hey, look I actually do have this 'money' - lemme borrow against it."

Do you think the same should apply to HELOC loans? It's basically the same thing but with your home rather than stocks.

[mindslight]

Yes why not, in the general case. With an exception when the loan funds are being reinvested in the property itself. But in the general case where home equity from appreciation is being turned into cash that's then used for other purposes, that looks an awful lot like realizing a gain to me.

In fact this might even be advantageous to certain homeowners who live in a property as their primary residence and then convert it to wholly rental use. Before you move out, take a loan to easily realize of 250k/500k gains which you can then deduct before it's no longer your primary residence.

[bdangubic]

Your home gains are being taxed already via ever-rising assessments on property taxes. So you are not hiding that and pretending that it is unrealized. You additionally do not pay real estate gains taxes on first 250k as well as...

[gruez]

>Your home gains are being taxed already via ever-rising assessments on property taxes.

it's a separate tax that's on the value, not the gains. Moreover, if we're allowed to bring in other taxes as offsetting factors, do capital gains on companies get a pass because corporations pay corporate taxes as well?

[zeroonetwothree]

From the point of view of the IRS you aren’t paying any taxes on your home’s appreciation until you sell.

[mason_mpls]

Even if there’s risk, this is still clearly realizing market gains