4 ms·
That doesn’t make any sense, presuming you meant “collateralize.” I put up $100k of stock for a $100k loan, I do nothing, turn around and pay the money back, a
by gfodor 5y ago
That doesn’t make any sense, presuming you meant “collateralize.”
I put up $100k of stock for a $100k loan, I do nothing, turn around and pay the money back, and now I have a tax bill? If I repeat this process, I can have an infinite tax liability with no realized gain or net income. Am I missing something?
- deleted 5y ago[deleted]
- yuliyp 5y agoNo, the tax bill would come with an adjustment of cost basis. The second time there's no change in value so no tax bill.
- deleted 5y ago[deleted]
- awillen 5y agoThe theoretical ability to create an infinite tax liability isn't an issue because people just won't do that. Also, you only tax people in this way if they're over a certain level of net worth/income.
- opportune 5y agoThe “repeating the process” is entirely the problem. If you perpetually roll over your loans you are able to spend large amounts of money without ever realizing a cent of it, thus never paying taxes (since your estate would end up paying it but then financial trickery makes the realization there non taxable). It would be easy to avoid this infinite tax liability by not taking out an infinite amount of loans…
- Anon1096 5y agoThe problem here is with the step up in cost basis upon death, not getting loans against unrealized shares.
- WalterBright 5y agoDon't overlook the estate tax.
- deleted 5y ago[deleted]
- gfodor 5y agoYou missed the part where I said you pay the loan back. You know, like all loans.
- gruez 5y agoYou can presumably adjust this for how much money you actually took out. If you got a line of credit on your house/stocks, but you didn't take out a cent, then you don't owe anything. If you took out 10% of your portfolio value in cash, and the LTV ratio was 50% (that is, you can borrow up to 50% of your portfolio's value), then you're deemed to have sold 20% of your portfolio and have to pay capital taxes. You're free to play around with the parameters when it comes to how the capital gains are calculated (eg. tax lot, which stock was "sold").
- gfodor 5y agoAnd then you pay back the loan (worth 10% of your portfolio.) So now you've been taxed for what exactly? Having access to a pile of cash for some temporary period that expired? It makes no sense to me. We don't tax you on the principal of a loan since it's not income, its debt.