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You have $1B in stock, and it represents 1% of your brokerage’s assets under management. You periodically borrow $10M from the brokerage using the stock as col
by hedora 2y ago
You have $1B in stock, and it represents 1% of your brokerage’s assets under management.
You periodically borrow $10M from the brokerage using the stock as collateral. They charge 0.25% (i.e., a few percent below inflation) and no minimum payments with the understanding that you will not move your assets.
- refurb 2y agoNormal margin rates are 5%+, I could see a big account getting a big discount, but 0.25%? At some point (well above 0.25%) it’s clear that a special rate is being offered that is no longer an arms length loan (IRS Part 1 Section 7872) and the imputed rate will be applied as if the difference is an interest payment from the bank to the customer. But let’s say the client gets 4% instead of the normal 5.5%. If they never pay it back it only takes a few years before they pay more in interest than they would have paid in capital gains taxes. It’s a “loophole” that nobody uses to avoid taxes for a lifetime.
- yywwbbn 2y ago> charge 0.25% Do they? I wouldn’t be surprised if their margin was 0.25% but they‘d still be charging it on top of the benchmark rate (~4.8% now) otherwise they’d be losing a lot of money overtime