[kd5bjo]

> You buy back shares and 'retire' them, thereby making everyone else's shares more valuable.

But the cash outflow to purchase those shares makes the company less valuable at the same time. In a completely efficient market, the amount of money that the company pays to buy back a share should be exactly balanced by the ownership percentage of that share, resulting in no net change to the price of the company's other shares.

[mattclarkdotnet]

Yes but as a shareholder I get an untaxed unrealised capital gain instead of a taxable dividend. I’m not a fan of taxing unrealised capital gains but this particular loophole could do with closing

[victorbjorklund]

But the tax will be paid when the stock is sold. It is more like letting the investor choose when to realise the gain and trigger the tax vs dividend that will happen regardless of wether the investor needs the money at that time or not.

[conception]

Or the stock is used as collateral for a tax free loan and never sold. Tax loophole engaged!

[Nemi]

The loan may be tax free, but it is surely not interest free.

[Kirby64]

For the ultra-wealthy, it doesn't matter. Look up "Buy, borrow, die".

[ndriscoll]

People who talk about "buy, borrow, die" never seem to mention interest.

Suppose your blended portfolio grows at 10%/year nominal, and you're in the 20% capital gains bracket. Then you would owe 2%/year taxes if you realized it every year. Would you not then need an interest rate lower than 2% nominal (i.e. 0% real, assuming 2% target inflation) to come out ahead? That's also assuming you're not already receiving some dividends/income or can't be selective about tax lots to sell.

You could say "well you can simply accumulate an interest balance without ever repaying the loan, and hope the assets appreciate faster than the interest compounds", but then shouldn't you have already levered up prior to ever considering taxes? So taking on additional loans pushes you outside of your risk tolerance? Do you borrow or pay taxes depending on your portfolio performance? How does this work?

I'd be interested in seeing what someone with an actual finance background has to say about this "strategy". The popular image is just "free money", but while I have enough assets to start buying things with margin loans myself, I'm failing to see how to get some of that free money.

It seems generally reasonable that using an asset to collateralize a loan should be a taxable event, but the narrative about how this gets used seems off to me when trying to figure out the details.

[ac29]

> Yes but as a shareholder I get an untaxed unrealised capital gain instead of a taxable dividend

In the US, stock buybacks are taxed. But, its a fairly negligible amount (1%).

[triceratops]

To close the loophole, ban buybacks. Or at least severely restrict them in some way. If a company wants to return profits let them issue dividends.