[trollbridge]

I still haven't heard a solid explanation of how taxing loans as "income" is going to work.

Being able to borrow against assets is a pretty essential part of the present-day economy. Almost everybody does it, from the very poorest taking out a car-title loan (however ill-advised) to middle-class people with home equity loans to medium sized businesses and farms who often have loans against their entire assets in order to buy more equipment or keep their operations going.

[bhelkey]

> I still haven't heard a solid explanation of how taxing loans as "income" is going to work.

The idea is that taking a secured loan out using an asset as collateral would be a taxable event for that asset.

That is to say, if you buy a house for $400,000 and it appreciates to be worth $850,000 then take a home equity loan out against the house, you would owe capital gains on the $450,000 appreciation.

With the current $250,000 capital gains exclusion for primary residence, this would result in ~$30,000 of capital gains tax.

[Terr_]

> The idea is that taking a secured loan out using an asset as collateral would be a taxable event for that asset.

Doesn't that puts valuations in the hands of people who could conspire to manipulate them, creating false data points?

For example, suppose you bought something for $25 a long time ago, and it has, very unofficially, appreciated to ~$100.

I could lend you $100, and the contract will say that I'm only asking for it to be partially secured with collateral, which will be, oh that "$25" asset which obviously hasn't appreciated in value at all. Poof, no gains tax.

I think the real issue here has to do with dodges in the Estate Tax, which is the endgame that these delaying games are meant to reach.

[lifeisstillgood]

That’s an interesting take.

I certainly agree with the estate / inheritance tax (the main issue is “resetting” the value to market at point of inheritance)

But as for the valuation problem I think that can only stretch so far. If you put up a million shares of $TechFirm as collateral for a loan to buy a yacht, it’s hard to claim they aren’t worth what the NYSE listed them as. If instead you put up 250,000 shares as partial collateral the bank has to put the missing collateral on its balance sheet (else some one is committing fraud)

The thing is it’s common. We on HN know all about “borrow till you die”, that Trump got Mar-a-lago valued at a billion dollars. The problem is not banks doing favours for valued clients, it’s so common and normalised that we don’t notice.

[Terr_]

My not-too-strategic thinking is that maybe we don't have to solve the tricky problem of loans, if we merely close the enormous final tax dodge that they're all aiming for.

https://taxproject.org/buy-borrow-die/