4 ms·

I kinda disagree. Yes it's a loophole to get around tax, but taking a loan against assets you own should not be taxable. It's the same pathway that people use t

I kinda disagree. Yes it's a loophole to get around tax, but taking a loan against assets you own should not be taxable. It's the same pathway that people use to take a loan against their property and other assets, and having to pay tax on that is absurd Similarly, stocks (or things like gold) that one owns have some worth, and using it as collateral for taking a loan against it is a completely valid thing to do

ncallaway 5y ago
Just put a reasonable threshold on it. Any assets, above $100M, used to collateralize a loan are taxed as if they are realized capital gains at the time that you collateralize the loan. I don't think the loan itself should be taxed, but if you use assets to collateralize a loan, those assets should be taxed as if they're realized income—since by taking the loan you are now "realizing" the value of those appreciating assets.
scythe 5y ago
Honestly, maybe people should pay taxes on that. Remember, it only applies to the gain in value, so loans up to the original purchase price would not be taxed. The tax is assessed based on the maximum collateralization minus the purchase price and minus any value previously taxed as a capital gain, as I understand it. In a practical sense, they have gained spending power they wouldn't have otherwise.
trhway 5y ago
>It's the same pathway that people use to take a loan against their property and other assets, and having to pay tax on that is absurd you bought house for $600K cash (for simplicity). Some years later the house appreciated to $1.5M, and you take out a $1M loan against it - you are obviously realizing a $400K of the value of the house as otherwise those additional $400K can only come from thin air. So those $400K of the realized value of the house (not the loan) need to be taxed with the house adjusted cost basis becoming $1M. If you sell the house later for $1.5M the remaining $500K would get taxed as the difference between sale proceeds and the adjusted cost basis.
WalterBright 5y ago
> Similarly, stocks (or things like gold) that one owns have some worth, and using it as collateral for taking a loan against it is a completely valid thing to do It's how the entire banking system works. Taking out loans against collateral deposited in the bank. People also take out a loan every time they use a credit card. Is that income, too?
- bryanlarsen 5y ago
  No, a credit card isn't collaterizing an asset because it's unsecured.
  - WalterBright 5y ago
    Try not paying your credit card debt and see what happens :-/ They'll come after your assets. And it's very hard to get a credit card without assets.

ncallaway 5y ago

Just put a reasonable threshold on it. Any assets, above $100M, used to collateralize a loan are taxed as if they are realized capital gains at the time that you collateralize the loan. I don't think the loan itself should be taxed, but if you use assets to collateralize a loan, those assets should be taxed as if they're realized income—since by taking the loan you are now "realizing" the value of those appreciating assets.

scythe 5y ago

Honestly, maybe people should pay taxes on that. Remember, it only applies to the gain in value, so loans up to the original purchase price would not be taxed. The tax is assessed based on the maximum collateralization minus the purchase price and minus any value previously taxed as a capital gain, as I understand it. In a practical sense, they have gained spending power they wouldn't have otherwise.

trhway 5y ago

>It's the same pathway that people use to take a loan against their property and other assets, and having to pay tax on that is absurd you bought house for $600K cash (for simplicity). Some years later the house appreciated to $1.5M, and you take out a $1M loan against it - you are obviously realizing a $400K of the value of the house as otherwise those additional $400K can only come from thin air. So those $400K of the realized value of the house (not the loan) need to be taxed with the house adjusted cost basis becoming $1M. If you sell the house later for $1.5M the remaining $500K would get taxed as the difference between sale proceeds and the adjusted cost basis.

WalterBright 5y ago

> Similarly, stocks (or things like gold) that one owns have some worth, and using it as collateral for taking a loan against it is a completely valid thing to do It's how the entire banking system works. Taking out loans against collateral deposited in the bank. People also take out a loan every time they use a credit card. Is that income, too?

bryanlarsen 5y ago
No, a credit card isn't collaterizing an asset because it's unsecured.
- WalterBright 5y ago
  Try not paying your credit card debt and see what happens :-/ They'll come after your assets. And it's very hard to get a credit card without assets.