4 ms·

That stock would be worth $150 million today. Why would someone worth that much money want a $50k loan, and put up 150 million dollars of assets as collateral

That stock would be worth $150 million today. Why would someone worth that much money want a $50k loan, and put up 150 million dollars of assets as collateral to avoid paying taxes on the loan? If they miss a payment they lose everything. Adjusting the numbers to normal human scale, it'd be like someone putting up their $1 million house as collateral, to secure a loan for 300 bucks, so that they can skirt 100 bucks in taxes.

Terr_ 3y ago
Yes, I know, the absurdly low valuation is the entire point, I'm illustrating a potential way to abuse the new rule. > If they miss a payment A non-issue since they will immediately repay the loan, and the lender is obviously complicit in the scheme. > Why would someone It's not about skipping taxes on the $50k loan, it's about skipping taxes on the $150,000k-ish investment by using and artificial valuation.
- monocasa 3y ago
  I mean, you just had a basis reset. If the asset is later sold, you still have taxes on that 150M - 50k difference defined from the basis set by the appraisal. It's like if you sold and immediately re-bought them from a capital gains perspective.
- rrrrrrrrrrrryan 3y ago
  If you have $150m of Amazon stock and you want to buy a mansion, you have to either sell the stock and pay taxes, or you can take out a loan and use the Amazon stock as collateral to get super favorable terms. A $50k loan won't buy you your mansion, nor will it help you avoid any taxes when you do try to realize some of the value of your Amazon stock. The point is that if you and a bank jointly agree the asset has appreciated in value, and you give the bank a claim on that asset in order to be approved for a big loan, this collateralization activity should be treated as a taxable event in the same way that a sale is, because both activities are different ways of realizing the gains.

Terr_ 3y ago

Yes, I know, the absurdly low valuation is the entire point, I'm illustrating a potential way to abuse the new rule. > If they miss a payment A non-issue since they will immediately repay the loan, and the lender is obviously complicit in the scheme. > Why would someone It's not about skipping taxes on the $50k loan, it's about skipping taxes on the $150,000k-ish investment by using and artificial valuation.

monocasa 3y ago
I mean, you just had a basis reset. If the asset is later sold, you still have taxes on that 150M - 50k difference defined from the basis set by the appraisal. It's like if you sold and immediately re-bought them from a capital gains perspective.
rrrrrrrrrrrryan 3y ago
If you have $150m of Amazon stock and you want to buy a mansion, you have to either sell the stock and pay taxes, or you can take out a loan and use the Amazon stock as collateral to get super favorable terms. A $50k loan won't buy you your mansion, nor will it help you avoid any taxes when you do try to realize some of the value of your Amazon stock. The point is that if you and a bank jointly agree the asset has appreciated in value, and you give the bank a claim on that asset in order to be approved for a big loan, this collateralization activity should be treated as a taxable event in the same way that a sale is, because both activities are different ways of realizing the gains.