Borrowing against unrealized gains

You pay it back when you die since the gains get stepped up for your heirs. It’s great for the wealthy since the cost to borrow is much less than the tax on gains. Also only really works well when the amount you borrow is small compared to your gains in case those gains disappear!

For us non rich people the government taxes long term gains at 0% on the first 80k or so if your income under like 70k (MFJ). So luckily I don’t have to deal with that when i retire one day.

Though if anyone can tell me what LTCG rates will be increasing to again in 2026 I’d love to know. Can’t seem to Google that.
 
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Retireby45ish said:
Though if anyone can tell me what LTCG rates will be increasing to again in 2026 I’d love to know. Can’t seem to Google that.
Click to expand...
I replied to your question in the other thread where you asked it. Who knows if you'll miss this reply too so I'm not going to the effort of repeating it.
 
Interesting, but I'd like to understand the detailed mechanics of how this works. Who lends the money? How does one's unrealized gains contribute to the loan approval? Is this some sort of margin play? Per usual, I'm sure I'm missing something.
 
HealthyFuture said:
Did anyone else hear WBUR’s On Point today?

I don’t understand how one borrows against stock holdings (unrealized gains), uses that money, but doesn’t pay taxes. Have others here borrowed against stock accounts? When/ how do you pay back the ‘loan’? It sounds crazy, but clearly is a real way of growing money.

https://www.wbur.org/onpoint/2022/0...ident-bidens-proposal-to-tax-unrealized-gains
Click to expand...

I heard part of the On Point piece that aired yesterday.

I have borrowed money from home equity lines of credit and margin loans from stock portfolios.

I do not pay any income tax on these loans because they are not considered income. The loans generally will need to be repaid in the future.

IMHO, the piece is a bit of a red-herring. They conflate the borrowing against assets with the deferred taxation on unrealized taxable gains.

If you read the ProPublica piece that it is based on, what they are really interesting in doing is taxing unrealized capital gains yearly. If they can't do that, they would like to at least tax them upon death and do away with the step-up in basis that normally occurs with (after-tax) capital assets transferred to beneficiaries.


FWIW Here is a write up that describes the "Buy Borrow Die" strategy mentioned in the radio report applied to the common man.
https://wallethacks.com/buy-borrow-die-estate-planning-strategy/

-gauss
 
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gauss said:
......
If you read the ProPublica piece that it is based on, what they are really interesting in doing is taxing unrealized capital gains yearly. If they can't do that, they would like to at least tax them upon death and do away with the step-up in basis that normally occurs with (after-tax) capital assets transferred to beneficiaries.

...
Click to expand...

That is what Canada does, so there is (IMHO) as massive hit to the estate as everything is considered to have been sold at the same time.

Better to spend down the stock portfolio than borrow against it in Canada.
 
All you have to do, is have your account enable margin, and start writing checks on the account.
 
Wasn't there a thread on this recently? Something about how the rich/wealthy live off loans?

EDIT: Found it:

https://www.early-retirement.org/forums/f28/living-off-of-margin-loans-111380-2.html#post2679144

With the stories in the news about how the ultra rich live off of their assets by borrowing against them instead of selling and realizing capital gains, I started wondering if the strategy was possible with a smaller portfolio. Would it be advantageous for taxes to just live off of margin loans? ....
Click to expand...

-ERD50
 
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Not to take a different direction, but this reminds me a lot of how Variable Universal Life products are promoted.

In my simple little life I find the Capital Gains rate at 0% for the first $80,000 on LTG a very appealing option in a taxable account.
 
Stormy Kromer said:
Not to take a different direction, but this reminds me a lot of how Variable Universal Life products are promoted.

In my simple little life I find the Capital Gains rate at 0% for the first $80,000 on LTG a very appealing option in a taxable account.
Click to expand...


But this 0% bucket won’t always be around. There is talk of the government raising taxes and the tax cuts expiring in 2026. This is what throws a wrench in my plan too.
 
marko said:
Good background for laymen...interest rates seem a little high (7% from one), although I've never really taken out a loan so I'm not a good judge.
Click to expand...


Somehow i feel like billionaires can get even better rates. Weren’t there people at interactive Brokers saying they were borrowing at like 1.5% last year?

Whatever the rate, as long as it’s less than whatever the tax rate is to unlock their money (gains) they are still winning.
 
gcgang said:
All you have to do, is have your account enable margin, and start writing checks on the account.
Click to expand...

That is what I was thinking... it is just using appreciated stock as security for a colateralized loan. The loan proceeds ae not taxable.

The only thing is that if one has an 8-figure stock portfolio it is likely throwing off $135k of dividends at a 1.35% dividend yield and even if one was MFJ then there would be some tax... but only a few thousand... but not totally tax free.
 
Ok. But at some point you have to pay back the principal. (?)
Of course if you die you're off the hook but that could be 30 years from now. Doesn't the bill come due well before that?
Or is this something like the "interest only mortgages" from days of old?
 
One thing to note: Most securities loans are variable rate, and work best when the securities are appreciating at a higher rate than the loan. (If they were depreciating, eventually the loan to value ratio gets too high.)

So this strategy "goes away" as short term rates rise. For instance, this is Interactive Brokers write up on their margin rate reference:
https://ibkr.info/article/2949

It is ironic that the Federal Reserve policy over the last n years has made the "borrow on appreciated securities" so lucrative.
 
I bought a car pulling my cash out of my stock margin account back around 1988; the car was a heck of a deal and I didn't have the cash on hand. The portfolio doubled and I sold enough to pay off the loan. Easy peasy. Haven't done it since.
 
copyright1997reloaded said:
One thing to note: Most securities loans are variable rate, and work best when the securities are appreciating at a higher rate than the loan. (If they were depreciating, eventually the loan to value ratio gets too high.)

So this strategy "goes away" as short term rates rise. For instance, this is Interactive Brokers write up on their margin rate reference:
https://ibkr.info/article/2949

It is ironic that the Federal Reserve policy over the last n years has made the "borrow on appreciated securities" so lucrative.
Click to expand...

Even with the recent rise in rates there are those over on Boglheads who claim at least to have negotiated 1.3% margin loans at IB.

There are also 'pledged asset' loans at higher rates, but with no margin call.

Plugging in my balance, my brokerage allows me to borrow 65% of my taxable portfolio via an external bank offering the line of credit at a quoted interest rate of around 3%.

Interest accrues as with a margin loan, no regular payment necessary.
 
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