5 ms·

> If you own stocks, your brokerage will lend you money at a very low rate, secured by the equity - typically up to about half of your stocks' worth. This shou

> If you own stocks, your brokerage will lend you money at a very low rate, secured by the equity - typically up to about half of your stocks' worth. This should be illegal of course... You cannot for the purposes of paying taxes say "hey, I don't actually have this money, this is unrealized gains" and then turn around (to brokerage house or anyone else) and say "hey, look I actually do have this 'money' - lemme borrow against it." Unrealized gains should never be taxed. However, as soon as you try to use it as realized in ANY way you should be taxed immediately.

1123581321 2y ago
That does not track for me. If someone has $20k in Schwab and chooses to use their credit card instead of selling stock and paying cash, I don't think they should have to pay taxes on that or suffer a criminal penalty. Same for taking on a car loan or a mortgage.
- creato 2y ago
  If that's what was happening you'd be right but it isn't. Credit cards have high rates and low limits for a reason: they are unsecured credit. Loans with collateral are secured by the collateral, and it makes some sense that should be considered a realized gain for that collateral (or loss for that matter).
  - deleted 2y ago
    [deleted]
  - __turbobrew__ 2y ago
    My bank will give me a 6 figure line of credit at prime+0.5% because they see all the assets I have (savings, cash, investments, mortgage). The line of credit is indirectly secured against all of the assets my bank can see. Should I be taxed when I use the line of credit my bank extends to me?
    - JumpCrisscross 2y ago
      What OP is missing is the role of collateral. It becomes more important the more perilous the borrower is or might be. Apple borrows for 20 years unsecured at 31 bps above the U.S. [1][2]. That wouldn't contract much if they offered collateral, because the difference in relative risk is modest to the point of immateriality. Similarly, someone with a century of living expenses in marketable securities really only needs to be restricted from blowing their stockpile--other risks are absorbed by that wealth. TL; DR The rich don't need collateral as much as the middle class and poor. Penalise the use of collateralised loans like that, and you just make collaterised lending go away or become much more expensive. [1] https://www.bondsupermart.com/bsm/bond-factsheet/US037833AT77 https://www.bondsupermart.com/bsm/bond-factsheet/US037833AT7... [2] https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value_month=202410 https://home.treasury.gov/resource-center/data-chart-center/...
      - bdangubic 2y ago
        > TL; DR The rich don't need collateral as much as the middle class and poor. You really buy this? Elon could just go fetch $44bn from a bank to buy Twitter without anything to back it?
        JumpCrisscross 2y ago
        > Elon could just go fetch $44bn from a bank to buy Twitter without anything to back it? Collateral "becomes more important the more perilous the borrower is or might be." It's immaterial to "someone with a century of living expenses." Elon Musk could probably have borrowed even $100mm unsecured on terms damn close if not identical to that which he could get on a secured loan, ceteris paribus. But Elon is uniquely leveraged. That makes him a more perilous borrower. And $44bn isn't lifestyle borrowing, either. Nevertheless, he could still probably get a hundred million lent unsecured on terms quite close to his secured rates--there are groups who would do that for relationship building alone.
        consteval 2y ago
  - 1123581321 2y ago
    No difference if secured. You could add to my list of examples a home equity loan. Should that be taxed as a partial sale of the house? No. Ask your credit union about the variety of loans they offer to regular people.
  - gpderetta 2y ago
    It gets more complicated. If you remortgage an house, should you pay CGT on any unrealized increase in value?
JumpCrisscross 2y ago
> as soon as you try to use it as realized in ANY way you should be taxed immediately You're trying to define a rule based on intent. That's doable. We do it all the time. But it tends to get messy, fast. How do you differentiate investment leverage from realizing gains through borrowing? If you track distributions, does a commensurate reduction in contributions count? What if the borrowing is done against the portfolio at large, or unsecured?
- bdangubic 2y ago
  It is not messy at all if you use KISS. You do not differentiate ever - ANY usage of unrealized gains makes them realized. Very simple to implement but of course won't ever happen :)
  - JumpCrisscross 2y ago
    > ANY usage of unrealized gains makes them realized What does "usage" mean? If you write a covered call, did you "use" the asset? If your broker lends your shares out, are they being used? What about presenting your brokerage statement as proof of assets to a mortgage banker? What about--I've done this--showing your brokerage statements to American Express to get a better rate? I'm still only talking about publicly-traded common stock, mind you. > simple to implement but of course won't ever happen Possible, but stupid. You'd raise taxes on the middle class who can't afford advice (or personal attention from lenders) while doing little to those who can dance in the ambiguity offered by what seems simple from a distance but is devilishly complex up close. Because at the end of the day, what you're trying to differentiate is intent. And intent is easy to hide and expensive to uncover. The core problem in this scheme isn't so much the deferred taxes as much as the eliminated ones: capping the step-up basis to e.g. $10mm, the EPA's statistical value of a human life, would do the trick. Unlike ascertaining "usage," whether or not someone has died is generally simple to determine.
    - bdangubic 2y ago
      I think this is the core issue for me in these discussion - it is not complex at all. If you sell your securities - you pay a tax - that part is simple. Until they it is "unrealized" - right? > If you write a covered call, did you "use" the asset? Yes > If your broker lends your shares out, are they being used? Yes > What about presenting your brokerage statement as proof of assets to a mortgage banker? Of course not > What about--I've done this--showing your brokerage statements to American Express to get a better rate? Of course not > You'd raise taxes on the middle class who can't afford advice This is always funny to me, middle class :) For sure it would not affect the middle class and there.is not need to "afford advice" when there is nothing complex about this that needs an advice of anyone. > Because at the end of the day, what you're trying to differentiate is intent Not at all, it is not "intent" at all - it is just very, very simple... You can own stock and keep it there - no problems. You want to use it for ANYTHING, you pay taxes on it.
gruez 2y ago
>This should be illegal of course... You cannot for the purposes of paying taxes say "hey, I don't actually have this money, this is unrealized gains" and then turn around (to brokerage house or anyone else) and say "hey, look I actually do have this 'money' - lemme borrow against it." Do you think the same should apply to HELOC loans? It's basically the same thing but with your home rather than stocks.
- bdangubic 2y ago
  Your home gains are being taxed already via ever-rising assessments on property taxes. So you are not hiding that and pretending that it is unrealized. You additionally do not pay real estate gains taxes on first 250k as well as...
  - gruez 2y ago
    >Your home gains are being taxed already via ever-rising assessments on property taxes. it's a separate tax that's on the value, not the gains. Moreover, if we're allowed to bring in other taxes as offsetting factors, do capital gains on companies get a pass because corporations pay corporate taxes as well?
  - zeroonetwothree 2y ago
    From the point of view of the IRS you aren’t paying any taxes on your home’s appreciation until you sell.
- mindslight 2y ago
  Yes why not, in the general case. With an exception when the loan funds are being reinvested in the property itself. But in the general case where home equity from appreciation is being turned into cash that's then used for other purposes, that looks an awful lot like realizing a gain to me. In fact this might even be advantageous to certain homeowners who live in a property as their primary residence and then convert it to wholly rental use. Before you move out, take a loan to easily realize of 250k/500k gains which you can then deduct before it's no longer your primary residence.
lxm 2y ago
What's your take than on HELOC?
- betaby 2y ago
  Capital gains on a primary residence is not taxes in most the cases anyways, so HELOC changes nothing tax wise.
eadmund 2y ago
Why should it be illegal? It’s not a realised gain. It has to be paid off … with money which has to come from somewhere (and be taxed as income or realised gains or whatever). What reason do you have for wanting it to be illegal, other than not liking it?
- bdangubic 2y ago
  How is it not realized? When I can use it as "realized" to borrow against it? When it comes to paying taxes I go "sorry Uncle Sam, this is fictitious, I don't really have this" but then I head over to the bank and go "look at my brokerage accounts, I have ALL THIS MONEY, lemme borrow against this now all-of-sudden realized money..."
  - WillPostForFood 2y ago
    Home equity loans also taxed as realized gains?
    - bdangubic 2y ago
      You are paying property tax on that money you are using for that HELOC. If I bought a house at $300k, I owe $250k and house is now worth $750k the County will be slapping me with $10k/year property taxes whereas before I was paying like $3k. My gains are realized each year via property tax assessments :)
      - JumpCrisscross 2y ago
        > My gains are realized each year via property tax assessments This strongly depends on jurisdiction. In many (today I learned, not all) assessed value is explicitly different from market value.
        WillPostForFood 2y ago
        Also, totally irrelevant to the capital gains tax you may owe the federal govt when you sell you house.
zooq_ai 2y ago
[flagged]
- unethical_ban 2y ago
  One could argue stocks be handled differently than homes. Or, to better capture the spirit of the proposal, one would progressively tax unrealized gains used for collateral.
- bdangubic 2y ago
  > Millions of Americans sit on appreciated home asset. Should they be taxed? You live in China and you do not pay property taxes on your home? If you live in America baby, you are not allowed to own anything - especially not homes. For that "right" you have to pay these things called property taxes and you have to pay them all the time... Once we get some same thing going for securities maybe we can do some comparisons like that - until then ... :) you are too funny mate, I needed this laugh
- dang 2y ago
  We've banned this account for breaking the site guidelines and ignoring our requests to stop. https://news.ycombinator.com/item?id=40858697 https://news.ycombinator.com/item?id=40858697 https://news.ycombinator.com/item?id=40515896 https://news.ycombinator.com/item?id=40515896 If you don't want to be banned, you're welcome to email hn@ycombinator.com and give us reason to believe that you'll follow the rules in the future. They're here: https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html.
bertjk 2y ago
The key difference here is whether your investment remains at risk. As long as the value of your investment is at risk, then the investment is considered unrealized. Once you cash in your chips (sell) then the investment becomes realized. Someone getting a loan against their stock portfolio is still at risk of loss of value of their holdings, therefore the investment gains remain unrealized.
ywvcbk 2y ago
What about reverse mortgages or any type of loan with any collateral? It’s more or less exactly the same..

1123581321 2y ago

That does not track for me. If someone has $20k in Schwab and chooses to use their credit card instead of selling stock and paying cash, I don't think they should have to pay taxes on that or suffer a criminal penalty. Same for taking on a car loan or a mortgage.

creato 2y ago
If that's what was happening you'd be right but it isn't. Credit cards have high rates and low limits for a reason: they are unsecured credit. Loans with collateral are secured by the collateral, and it makes some sense that should be considered a realized gain for that collateral (or loss for that matter).
- deleted 2y ago
  [deleted]
- __turbobrew__ 2y ago
  My bank will give me a 6 figure line of credit at prime+0.5% because they see all the assets I have (savings, cash, investments, mortgage). The line of credit is indirectly secured against all of the assets my bank can see. Should I be taxed when I use the line of credit my bank extends to me?
  - JumpCrisscross 2y ago
    What OP is missing is the role of collateral. It becomes more important the more perilous the borrower is or might be. Apple borrows for 20 years unsecured at 31 bps above the U.S. [1][2]. That wouldn't contract much if they offered collateral, because the difference in relative risk is modest to the point of immateriality. Similarly, someone with a century of living expenses in marketable securities really only needs to be restricted from blowing their stockpile--other risks are absorbed by that wealth. TL; DR The rich don't need collateral as much as the middle class and poor. Penalise the use of collateralised loans like that, and you just make collaterised lending go away or become much more expensive. [1] https://www.bondsupermart.com/bsm/bond-factsheet/US037833AT77 https://www.bondsupermart.com/bsm/bond-factsheet/US037833AT7... [2] https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value_month=202410 https://home.treasury.gov/resource-center/data-chart-center/...
    - bdangubic 2y ago
      > TL; DR The rich don't need collateral as much as the middle class and poor. You really buy this? Elon could just go fetch $44bn from a bank to buy Twitter without anything to back it?
      - JumpCrisscross 2y ago
        > Elon could just go fetch $44bn from a bank to buy Twitter without anything to back it? Collateral "becomes more important the more perilous the borrower is or might be." It's immaterial to "someone with a century of living expenses." Elon Musk could probably have borrowed even $100mm unsecured on terms damn close if not identical to that which he could get on a secured loan, ceteris paribus. But Elon is uniquely leveraged. That makes him a more perilous borrower. And $44bn isn't lifestyle borrowing, either. Nevertheless, he could still probably get a hundred million lent unsecured on terms quite close to his secured rates--there are groups who would do that for relationship building alone.
      - consteval 2y ago
- 1123581321 2y ago
  No difference if secured. You could add to my list of examples a home equity loan. Should that be taxed as a partial sale of the house? No. Ask your credit union about the variety of loans they offer to regular people.
- gpderetta 2y ago
  It gets more complicated. If you remortgage an house, should you pay CGT on any unrealized increase in value?

JumpCrisscross 2y ago

> as soon as you try to use it as realized in ANY way you should be taxed immediately You're trying to define a rule based on intent. That's doable. We do it all the time. But it tends to get messy, fast. How do you differentiate investment leverage from realizing gains through borrowing? If you track distributions, does a commensurate reduction in contributions count? What if the borrowing is done against the portfolio at large, or unsecured?

bdangubic 2y ago
It is not messy at all if you use KISS. You do not differentiate ever - ANY usage of unrealized gains makes them realized. Very simple to implement but of course won't ever happen :)
- JumpCrisscross 2y ago
  > ANY usage of unrealized gains makes them realized What does "usage" mean? If you write a covered call, did you "use" the asset? If your broker lends your shares out, are they being used? What about presenting your brokerage statement as proof of assets to a mortgage banker? What about--I've done this--showing your brokerage statements to American Express to get a better rate? I'm still only talking about publicly-traded common stock, mind you. > simple to implement but of course won't ever happen Possible, but stupid. You'd raise taxes on the middle class who can't afford advice (or personal attention from lenders) while doing little to those who can dance in the ambiguity offered by what seems simple from a distance but is devilishly complex up close. Because at the end of the day, what you're trying to differentiate is intent. And intent is easy to hide and expensive to uncover. The core problem in this scheme isn't so much the deferred taxes as much as the eliminated ones: capping the step-up basis to e.g. $10mm, the EPA's statistical value of a human life, would do the trick. Unlike ascertaining "usage," whether or not someone has died is generally simple to determine.
  - bdangubic 2y ago
    I think this is the core issue for me in these discussion - it is not complex at all. If you sell your securities - you pay a tax - that part is simple. Until they it is "unrealized" - right? > If you write a covered call, did you "use" the asset? Yes > If your broker lends your shares out, are they being used? Yes > What about presenting your brokerage statement as proof of assets to a mortgage banker? Of course not > What about--I've done this--showing your brokerage statements to American Express to get a better rate? Of course not > You'd raise taxes on the middle class who can't afford advice This is always funny to me, middle class :) For sure it would not affect the middle class and there.is not need to "afford advice" when there is nothing complex about this that needs an advice of anyone. > Because at the end of the day, what you're trying to differentiate is intent Not at all, it is not "intent" at all - it is just very, very simple... You can own stock and keep it there - no problems. You want to use it for ANYTHING, you pay taxes on it.

gruez 2y ago

>This should be illegal of course... You cannot for the purposes of paying taxes say "hey, I don't actually have this money, this is unrealized gains" and then turn around (to brokerage house or anyone else) and say "hey, look I actually do have this 'money' - lemme borrow against it." Do you think the same should apply to HELOC loans? It's basically the same thing but with your home rather than stocks.

bdangubic 2y ago
Your home gains are being taxed already via ever-rising assessments on property taxes. So you are not hiding that and pretending that it is unrealized. You additionally do not pay real estate gains taxes on first 250k as well as...
- gruez 2y ago
  >Your home gains are being taxed already via ever-rising assessments on property taxes. it's a separate tax that's on the value, not the gains. Moreover, if we're allowed to bring in other taxes as offsetting factors, do capital gains on companies get a pass because corporations pay corporate taxes as well?
- zeroonetwothree 2y ago
  From the point of view of the IRS you aren’t paying any taxes on your home’s appreciation until you sell.
mindslight 2y ago
Yes why not, in the general case. With an exception when the loan funds are being reinvested in the property itself. But in the general case where home equity from appreciation is being turned into cash that's then used for other purposes, that looks an awful lot like realizing a gain to me. In fact this might even be advantageous to certain homeowners who live in a property as their primary residence and then convert it to wholly rental use. Before you move out, take a loan to easily realize of 250k/500k gains which you can then deduct before it's no longer your primary residence.

lxm 2y ago

What's your take than on HELOC?

betaby 2y ago
Capital gains on a primary residence is not taxes in most the cases anyways, so HELOC changes nothing tax wise.

eadmund 2y ago

Why should it be illegal? It’s not a realised gain. It has to be paid off … with money which has to come from somewhere (and be taxed as income or realised gains or whatever). What reason do you have for wanting it to be illegal, other than not liking it?

bdangubic 2y ago
How is it not realized? When I can use it as "realized" to borrow against it? When it comes to paying taxes I go "sorry Uncle Sam, this is fictitious, I don't really have this" but then I head over to the bank and go "look at my brokerage accounts, I have ALL THIS MONEY, lemme borrow against this now all-of-sudden realized money..."
- WillPostForFood 2y ago
  Home equity loans also taxed as realized gains?
  - bdangubic 2y ago
    You are paying property tax on that money you are using for that HELOC. If I bought a house at $300k, I owe $250k and house is now worth $750k the County will be slapping me with $10k/year property taxes whereas before I was paying like $3k. My gains are realized each year via property tax assessments :)
    - JumpCrisscross 2y ago
      > My gains are realized each year via property tax assessments This strongly depends on jurisdiction. In many (today I learned, not all) assessed value is explicitly different from market value.
      - WillPostForFood 2y ago
        Also, totally irrelevant to the capital gains tax you may owe the federal govt when you sell you house.

zooq_ai 2y ago

[flagged]

unethical_ban 2y ago
One could argue stocks be handled differently than homes. Or, to better capture the spirit of the proposal, one would progressively tax unrealized gains used for collateral.
bdangubic 2y ago
> Millions of Americans sit on appreciated home asset. Should they be taxed? You live in China and you do not pay property taxes on your home? If you live in America baby, you are not allowed to own anything - especially not homes. For that "right" you have to pay these things called property taxes and you have to pay them all the time... Once we get some same thing going for securities maybe we can do some comparisons like that - until then ... :) you are too funny mate, I needed this laugh
dang 2y ago
We've banned this account for breaking the site guidelines and ignoring our requests to stop. https://news.ycombinator.com/item?id=40858697 https://news.ycombinator.com/item?id=40858697 https://news.ycombinator.com/item?id=40515896 https://news.ycombinator.com/item?id=40515896 If you don't want to be banned, you're welcome to email hn@ycombinator.com and give us reason to believe that you'll follow the rules in the future. They're here: https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html.

bertjk 2y ago

The key difference here is whether your investment remains at risk. As long as the value of your investment is at risk, then the investment is considered unrealized. Once you cash in your chips (sell) then the investment becomes realized. Someone getting a loan against their stock portfolio is still at risk of loss of value of their holdings, therefore the investment gains remain unrealized.

ywvcbk 2y ago

What about reverse mortgages or any type of loan with any collateral? It’s more or less exactly the same..