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His tax situation really has nothing to do with it. If he sells his Tesla shares, he's still going to owe CA tax. But he never has to sell any Tesla shares, he

by darawk 5y ago

His tax situation really has nothing to do with it. If he sells his Tesla shares, he's still going to owe CA tax. But he never has to sell any Tesla shares, he can just buy hedges against them and take out loans. If you have sufficient capital assets, you never have to actual earn any "income" or generate any "capital gains" if you don't want to.

asdff 5y ago
He has options he will be selling soon and they are taxed where they will be sold, in this case texas.
skissane 5y ago
> But he never has to sell any Tesla shares, he can just buy hedges against them and take out loans So he takes out a $1 billion loan, and he offers $1 billion in stock as a security, and then also buys a futures contract (or a put option) on his $1 billion of stock to lock in the current price, so if the stock goes down in value over the life of the loan, the lender doesn't lose their security? And then when the loan falls due, he refinances – get a new loan using the same mechanism, and use it to repay the existing one? And he doesn't owe capital gains tax on the stock he uses as security, because he doesn't actually sell it? I suppose though, you can't just go on refinancing forever. One day he will die, and then it will have to come out of his estate, and I guess his estate may pay the capital gains tax then? So it is really delaying paying tax, rather than getting out of it forever? Unless, I suppose, he leaves the stock to a trust in his will, and transfers the loan to the trust too, and then the trust can continue this process long after he is gone? And maybe, if it is a charitable trust, even use some charitable tax exemption to get out of paying the tax permanently?
- darawk 5y ago
  Yep, you've got it. The most beautiful part of the whole thing is the step up in basis for the estate. When you pass on your estate, the cost basis of all your assets get "stepped up" to the current market value. This means that if he passes on his estate to his children, they can then sell the shares to repay the loan with zero tax. All this adds up to zero capital gains taxes being paid ever on the entire amount.
  - ant6n 5y ago
    How does the "step up" of the cost basis happen with paying any taxes at the same time?
    - darawk 5y ago
      I'm not sure I understand the question. The assets in your estate get their cost basis reset to the current market value when your estate is passed on. That means the capital gains in his shares disappear. That being said, the estate tax would kick in for everything over 11m, so he'd have to use other tricks to work around that limitation.
      - ant6n 5y ago
        There was a typo, with->without
- martinald 5y ago
  There will be interest on the loan. Probably fairly low given the collateral, but it won't be 0 (assuming this is not a sweetner from some investment bank that works a lot with Tesla/SpaceX). If it's hedged you actually don't have any upside so you will always be 'underwater' on the loan assuming >0 interest rate. If interest rates were higher, it probably wouldn't make sense to do this endless loan trick[1]. Say you get charged 5% on this loan or you could pay 30% cap gains. It would only take 5 years for the interest payments to outstrip the upfront hit on the tax. 1. This is very simplistic though, as likely the $1bn would be invested in some way that would kick off some return, probably enough to cover the interest.
- quickthrowman 5y ago
  > I suppose though, you can't just go on refinancing forever. One day he will die, and then it will have to come out of his estate, and I guess his estate may pay the capital gains tax then? This is the best part. The cost basis for assets is stepped up on death to the price of the asset on the day that the decedent .. became the decedent. That becomes the cost basis for any capital gains tax the heir would owe if they sold the asset.
  - kgc 5y ago
    The estate tax is 40% above about 11 million. Soon to be about 5 million.
tshaddox 5y ago
Also he could just pay whatever “high” taxes there are and I’m confident he would still have enough money to buy whatever he needs plus plenty of fun toys. He’ll be alright, I’m confident of it!
- darawk 5y ago
  My point is just that moving because of high taxes doesn't make sense for him, even if you think he cares about the money. He doesn't have to pay it unless he wants to.
deleted 5y ago
[deleted]

by darawk 5y ago

asdff 5y ago

He has options he will be selling soon and they are taxed where they will be sold, in this case texas.

skissane 5y ago

> But he never has to sell any Tesla shares, he can just buy hedges against them and take out loans So he takes out a $1 billion loan, and he offers $1 billion in stock as a security, and then also buys a futures contract (or a put option) on his $1 billion of stock to lock in the current price, so if the stock goes down in value over the life of the loan, the lender doesn't lose their security? And then when the loan falls due, he refinances – get a new loan using the same mechanism, and use it to repay the existing one? And he doesn't owe capital gains tax on the stock he uses as security, because he doesn't actually sell it? I suppose though, you can't just go on refinancing forever. One day he will die, and then it will have to come out of his estate, and I guess his estate may pay the capital gains tax then? So it is really delaying paying tax, rather than getting out of it forever? Unless, I suppose, he leaves the stock to a trust in his will, and transfers the loan to the trust too, and then the trust can continue this process long after he is gone? And maybe, if it is a charitable trust, even use some charitable tax exemption to get out of paying the tax permanently?

darawk 5y ago
Yep, you've got it. The most beautiful part of the whole thing is the step up in basis for the estate. When you pass on your estate, the cost basis of all your assets get "stepped up" to the current market value. This means that if he passes on his estate to his children, they can then sell the shares to repay the loan with zero tax. All this adds up to zero capital gains taxes being paid ever on the entire amount.
- ant6n 5y ago
  How does the "step up" of the cost basis happen with paying any taxes at the same time?
  - darawk 5y ago
    I'm not sure I understand the question. The assets in your estate get their cost basis reset to the current market value when your estate is passed on. That means the capital gains in his shares disappear. That being said, the estate tax would kick in for everything over 11m, so he'd have to use other tricks to work around that limitation.
    - ant6n 5y ago
      There was a typo, with->without
martinald 5y ago
There will be interest on the loan. Probably fairly low given the collateral, but it won't be 0 (assuming this is not a sweetner from some investment bank that works a lot with Tesla/SpaceX). If it's hedged you actually don't have any upside so you will always be 'underwater' on the loan assuming >0 interest rate. If interest rates were higher, it probably wouldn't make sense to do this endless loan trick[1]. Say you get charged 5% on this loan or you could pay 30% cap gains. It would only take 5 years for the interest payments to outstrip the upfront hit on the tax. 1. This is very simplistic though, as likely the $1bn would be invested in some way that would kick off some return, probably enough to cover the interest.
quickthrowman 5y ago
> I suppose though, you can't just go on refinancing forever. One day he will die, and then it will have to come out of his estate, and I guess his estate may pay the capital gains tax then? This is the best part. The cost basis for assets is stepped up on death to the price of the asset on the day that the decedent .. became the decedent. That becomes the cost basis for any capital gains tax the heir would owe if they sold the asset.
- kgc 5y ago
  The estate tax is 40% above about 11 million. Soon to be about 5 million.

tshaddox 5y ago

Also he could just pay whatever “high” taxes there are and I’m confident he would still have enough money to buy whatever he needs plus plenty of fun toys. He’ll be alright, I’m confident of it!

darawk 5y ago
My point is just that moving because of high taxes doesn't make sense for him, even if you think he cares about the money. He doesn't have to pay it unless he wants to.

deleted 5y ago

[deleted]