I feel like this is a myth people share without ever looking into. You service the debt with income that you make and pay tax on the income you service the debt with
They do not need to service debt using taxable income, they can roll it over indefinitely or until death, at which point the tax obligation disappears due to the stepped-up basis (capital gains reset on death)
Bro, this is HN. Most of us here know at least one person who does this. It seemed pretty popular with the early Facebook folks. So this talking point that this is a myth isn't going to work here.
Well by all means educate me, do these people just not make payments on the loan? Take out another loan to pay the first one? I just don't see how taking out loans prevents you from paying taxes on income, assuming you have to make payments with some income somewhere.
If they need 10 million for a house they take out a loan against their stock for the purchase. They then only pay tax on the income to service that loan, not the entire 10 million.
If they gain more on the 10 million still in stock than the interest on the loan the numbers benefited them. They effectively have 20 million in assets working for them for the modest debt services and without a tax haircut. In the other case they would have half the assets working for them plus would have had to pay 2 million to get those assets.
Meta is up 240% in the last five years. Which is better, not paying modest debt service and paying 2 million taxes AND missing a 240% gain on 12 million (home cost plus taxes), or keeping the 10 million working for you (and the 2 million you didn't pay to taxes) and gaining 240% on it?