[NewJazz]

Eventually those loans will need to be repaid and the money will need to come from realizing capital gains.

Uh, yes. But they can be repaid with refinanced loans based on the same assets... So no guarantee that the gains will be realized. And in the possibly long interim between loan issuance and maturity, the owner accesses liquidity via the asset and pays nothing in taxes.

Which all raises the issue of being taxed twice on the same money. Taxes once when you take the loan against it, and taxed again when you realize the profit to pay the loan.

To clarify, I advocate that the loan issuance be a taxable event, where the cost basis of the shares are adjusted to the current price of the asset. So there would be no double taxation.

[jandrewrogers]

I think it is useful to point out that the conditions under which those loans make any sense are incredibly narrow. It is far from the norm because it doesn’t pencil out in pure financial math. Wealthy people are not stupid, and the notion that this is being widely used as a tax avoidance measure tacitly makes that assumption. Studies seem to indicate that the prevalence is so low as to round to zero. There are many practical reasons to do it at the margin as a cashflow management exercise but not as a way of generating tax-free income.

The interest on those loans is taxed as income which feeds back into the model.

[NewJazz]

If it doesn't happen that often, then it shouldn't be a big deal to change the law.