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Pretty good overview of how/why these deductions reduce your taxable income. Couple of things to note. Depreciation is recaptured if you sell an asset for more

Pretty good overview of how/why these deductions reduce your taxable income. Couple of things to note. Depreciation is recaptured if you sell an asset for more than its depreciated basis. People sometimes get into trouble with this if they rapidly depreciate real estate and then sell it. Even if you sell for less than your purchase price it is possible to owe taxes. You also aren't going to be able to pay no taxes since you do need to realize some income to pay for mortgage/rent, food, transportation, etc. I guess if you had assets you could borrow against it would be possible to pay for these using the loan proceeds (which are not taxable).

gautamcgoel 7mo ago
The thing I don't understand with these loan arguments is: don't you eventually need to pay taxes in the income you use to repay the loan? It seems to me that folks who take out such loans are just kicking the can down the road.
- whaleofatw2022 7mo ago
  Sometimes its about the layers. I.e. what kinds of loans can be tax deductible? To be clear theres decent effort into this, you can't just do a cash-out refi on a home, but loopholes exist for those who find it worth the effort.
- jeffreyrogers 7mo ago
  You do. I think these loans are generally used for short term liquidity. For example if you want to buy a new house before selling your old one. You'd get a loan against your assets, buy the home with the loan proceeds, sell your old home and pay off the loan. If your assets are growing faster than the interest it would also be possible to payoff the loan with a new (larger) loan, so you are still kicking the can down the road but eventually you would die and never need to pay the taxes while you were alive. I doubt this is done that often in practice, but who knows.
- OkayPhysicist 7mo ago
  As mentioned in the article, death (and subsequent inheritance), solves this problem. Once you're dead, your tax situation changes significantly, and selling your assets to settle your debts is subject to estate taxes, not capital gains.
- nout 7mo ago
  You repay with another loan. Repeat multiple times. And then you die. This is the strategy that people follow.
- gamerdonkey 7mo ago
  The strategy is called "Buy, Borrow, Die" https://www.theatlantic.com/economy/archive/2025/03/tax-loophole-buy-borrow-die/682031/ https://www.theatlantic.com/economy/archive/2025/03/tax-loop... (viewable by disabling JS)
  - xienze 7mo ago
    What if I live for, say, decades before dying. Surely the lender expects some some amount of repayment before then.
    - throwaway667555 7mo ago
      Lenders have an amount of capital that they need to invest and earn returns -- they're generally not in the business temporarily so they don't want their capital back. And when the loans are secured by hard assets, e.g. publicly traded stocks, there's little risk of default so long as the price stays up. In times of rising stock prices, there's little to no reason for a debt holder (lender) to exit their positions at maturity. Rather roll and continue taking the return (interest).
    - jeffreyrogers 7mo ago
      I don't know how these specific loans are structured but in real estate it's relatively common for a loan to be interest only with a balloon payment (the principal) due some number of years in the future. So in theory you could just pay off the balloon payment with a new loan and repeat the process.
      - deleted 7mo ago
        [deleted]
      - phil21 7mo ago
        Lines of credit against assets are typically interest only, interest rate pegged to however many basis points above the current fed fund rate. There is no balloon payment ever due if you simply pay off the interest indefinitely. Of course there is always the possibility of a margin call against the loan where if you lose X% of value on the securing asset you may be liquidated of it and the proceeds used to pay off said line of credit. There are a million caveats and different loan structures so I’m sure some finance bro will be along to correct me shortly. But overall for normalish folks this is more or less the correct mental model.
- anon291 7mo ago
  A margin loan typically does not require any payments at all other than interest. Many loans are like this. Amortization for principal repayment is usually something you only find in personal or real estate loans
- claythearc 7mo ago
  There are a bunch of strategies here, but one people oft repeat is the "buy, borrow, die" approach. Where, they are kicking the can down the road, but the magic happens at the die step. When the borrower dies: Your heirs inherit your stocks, with their cost basis reset to the current price. This means that they have zero appreciation of your purchase of $RIVN at $67, despite it being at $420. They can then sell the shares, to pay the loans, and not owe capital gains, because there are no gains. Additionally, at this step cash can be extracted for no gains as well if desired. So you avoid taxes while alive by taking loans (not income), avoiding capital gains (never selling), and then gains evaporate through a stepped up basis. There are some exceptions here - estate taxes, etc with ways around them like trusts, but this is the general mechanism. Its worth noting though, that its not ironclad. In a significant downturn you can be forced to liquidate and it will hurt (see the news on Musk right after X purchase). Additionally, while people talk about this as being super popular, realize that in practice people who take advantage of these strategies also still have millions in cash flow, so its not a true borrow only $0 tax lifestyle, they will use already taxed money to manage them as well.
  - avemg 7mo ago
    I'm familiar with this strategy but there's one thing about it that I don't understand: After death, the loans are an estate liability, right? Doesn't the estate need to be settled before heirs get their inheritance? If i had an outstanding $1MM loan, wouldn't the estate need to liquidate some of that $RIVN at the $67 basis in order to pay the loan? and then whatever $RIVN was left over would go to the heirs at a stepped-up basis?
    - jeffreyrogers 7mo ago
      The step up in basis happens when you die, so the estate has no capital gain. Then the debts are paid, then the heirs get whatever they're supposed to get.
      - avemg 7mo ago
        Ok thank you. That was the key to my misunderstanding.
- throwaway667555 7mo ago
  When the cash flow from the assets exceeds interest expense, you've cashed out the assets without incurring tax on your appreciated position and you can afford to pay the interest. As for principal, debt is largely not paid back these days, especially large bespoke debt secured by liquid and well-defined assets. The debt holders (lenders) get paid back after death of the borrower or they continue rolling the position and collecting their return (interest income). The only question in the lender's mind is how much leverage to grant on the underlying assets, e.g. blue chip stocks, and what to do in a liquidity crunch when rolling.
- anon291 7mo ago
  Investment interest is deductible like mortgage interest
PopAlongKid 7mo ago
>People sometimes get into trouble with this if they rapidly depreciate real estate and then sell it. Even if you sell for less than your purchase price it is possible to owe taxes. But in the U.S. you can't rapidly depreciate real estate, it is generally straight-line over 27.5 or 39 years (residential vs. non-residential). The gain on real estate due to depreciation is technically referred to as Section 1250 gain, and if there is no gain (which is calculated against your adjusted basis, not purchase price), then it follows that there is no Sec. 1250 gain (often mistakenly called "depreciation recapture").
- jeffreyrogers 7mo ago
  No, you can do cost segregation to classify some of the real property as Section 1245 (which is accelerated vs Section 1250). People doing this and then selling is how they get unexpected tax bills.
  - MichaelFeldman 7mo ago
    The “unexpected tax bill” usually comes from people not realizing they pulled those deductions forward earlier. Also worth noting, if you don’t sell (or you 1031), that recapture can be deferred, which is why a lot of investors still use cost segregation aggressively. This is a pretty clear breakdown of how 1245 vs 1250 recapture actually works on sale if anyone wants the full picture: https://notaxcompromise.com/cost-segregation/depreciation-recapture/section-1245-vs-1250 https://notaxcompromise.com/cost-segregation/depreciation-re...
  - PopAlongKid 7mo ago
    Most of the time 1245 property is not real property, it is personal property, which is why I didn't mention it in this context.
- CGMthrowaway 7mo ago
  Cost seg
kccqzy 7mo ago
This is exactly why many people became landlords, but changed their mind and found that there is no way out. You might decide one day to buy some investment property, but after a few years when you lost interest in the pursuit, quitting would actually give you a huge tax headache in the form of unrecaptured section 1250 gain. This is unfair. You can quit a W-2 job or a hobby without tax consequences.
- jcdavis 7mo ago
  Hard to sympathize with the landlord class too much on this one. Everyone knows how depreciation schedule works and gets in to it in no small part because of that deduction benefit + the hopes that via 1031 exchanges etc they can delay it until death.
  - kccqzy 7mo ago
    > Everyone knows how depreciation schedule works Everyone is way too strong a word. Unlike a regular job, there is no course or qualification needed to become a landlord. In the Bay Area I know lots of people in tech who bought a house, couldn’t afford mortgage payments (perhaps after a layoff) and decided to rent out parts of their house. Or perhaps just a particularly smooth talking real estate convinced someone to sell their stocks and buy investment property. You might say that not knowing about all housing related costs upfront is evidence of financial illiteracy. You might also say not knowing about depreciation before buying a house is also evidence of financial illiteracy. You might even say committing to a mortgage payment while your own job prospects disappear is evidence of bad risk management. But in real life many people make bad financial decisions, landlords included. Landlords do not inherently have more financial aptitude.
    - jcdavis 7mo ago
      I'll agree that "everyone" is probably an unfair characterization. But the tax benefits of depreciation are wildly touted among real estate investors. If they didn't claim depreciation in prior years they can still get it via Form 3115. Yes this is complicated/annoying to do (almost certainly need a CPA), which you can argue is unfair, but I'm still going to have limited sympathy for anyone DIYing in this space without talking to a professional.

gautamcgoel 7mo ago

The thing I don't understand with these loan arguments is: don't you eventually need to pay taxes in the income you use to repay the loan? It seems to me that folks who take out such loans are just kicking the can down the road.

whaleofatw2022 7mo ago
Sometimes its about the layers. I.e. what kinds of loans can be tax deductible? To be clear theres decent effort into this, you can't just do a cash-out refi on a home, but loopholes exist for those who find it worth the effort.
jeffreyrogers 7mo ago
You do. I think these loans are generally used for short term liquidity. For example if you want to buy a new house before selling your old one. You'd get a loan against your assets, buy the home with the loan proceeds, sell your old home and pay off the loan. If your assets are growing faster than the interest it would also be possible to payoff the loan with a new (larger) loan, so you are still kicking the can down the road but eventually you would die and never need to pay the taxes while you were alive. I doubt this is done that often in practice, but who knows.
OkayPhysicist 7mo ago
As mentioned in the article, death (and subsequent inheritance), solves this problem. Once you're dead, your tax situation changes significantly, and selling your assets to settle your debts is subject to estate taxes, not capital gains.
nout 7mo ago
You repay with another loan. Repeat multiple times. And then you die. This is the strategy that people follow.
gamerdonkey 7mo ago
The strategy is called "Buy, Borrow, Die" https://www.theatlantic.com/economy/archive/2025/03/tax-loophole-buy-borrow-die/682031/ https://www.theatlantic.com/economy/archive/2025/03/tax-loop... (viewable by disabling JS)
- xienze 7mo ago
  What if I live for, say, decades before dying. Surely the lender expects some some amount of repayment before then.
  - throwaway667555 7mo ago
    Lenders have an amount of capital that they need to invest and earn returns -- they're generally not in the business temporarily so they don't want their capital back. And when the loans are secured by hard assets, e.g. publicly traded stocks, there's little risk of default so long as the price stays up. In times of rising stock prices, there's little to no reason for a debt holder (lender) to exit their positions at maturity. Rather roll and continue taking the return (interest).
  - jeffreyrogers 7mo ago
    I don't know how these specific loans are structured but in real estate it's relatively common for a loan to be interest only with a balloon payment (the principal) due some number of years in the future. So in theory you could just pay off the balloon payment with a new loan and repeat the process.
    - deleted 7mo ago
      [deleted]
    - phil21 7mo ago
      Lines of credit against assets are typically interest only, interest rate pegged to however many basis points above the current fed fund rate. There is no balloon payment ever due if you simply pay off the interest indefinitely. Of course there is always the possibility of a margin call against the loan where if you lose X% of value on the securing asset you may be liquidated of it and the proceeds used to pay off said line of credit. There are a million caveats and different loan structures so I’m sure some finance bro will be along to correct me shortly. But overall for normalish folks this is more or less the correct mental model.
anon291 7mo ago
A margin loan typically does not require any payments at all other than interest. Many loans are like this. Amortization for principal repayment is usually something you only find in personal or real estate loans
claythearc 7mo ago
There are a bunch of strategies here, but one people oft repeat is the "buy, borrow, die" approach. Where, they are kicking the can down the road, but the magic happens at the die step. When the borrower dies: Your heirs inherit your stocks, with their cost basis reset to the current price. This means that they have zero appreciation of your purchase of $RIVN at $67, despite it being at $420. They can then sell the shares, to pay the loans, and not owe capital gains, because there are no gains. Additionally, at this step cash can be extracted for no gains as well if desired. So you avoid taxes while alive by taking loans (not income), avoiding capital gains (never selling), and then gains evaporate through a stepped up basis. There are some exceptions here - estate taxes, etc with ways around them like trusts, but this is the general mechanism. Its worth noting though, that its not ironclad. In a significant downturn you can be forced to liquidate and it will hurt (see the news on Musk right after X purchase). Additionally, while people talk about this as being super popular, realize that in practice people who take advantage of these strategies also still have millions in cash flow, so its not a true borrow only $0 tax lifestyle, they will use already taxed money to manage them as well.
- avemg 7mo ago
  I'm familiar with this strategy but there's one thing about it that I don't understand: After death, the loans are an estate liability, right? Doesn't the estate need to be settled before heirs get their inheritance? If i had an outstanding $1MM loan, wouldn't the estate need to liquidate some of that $RIVN at the $67 basis in order to pay the loan? and then whatever $RIVN was left over would go to the heirs at a stepped-up basis?
  - jeffreyrogers 7mo ago
    The step up in basis happens when you die, so the estate has no capital gain. Then the debts are paid, then the heirs get whatever they're supposed to get.
    - avemg 7mo ago
      Ok thank you. That was the key to my misunderstanding.
throwaway667555 7mo ago
When the cash flow from the assets exceeds interest expense, you've cashed out the assets without incurring tax on your appreciated position and you can afford to pay the interest. As for principal, debt is largely not paid back these days, especially large bespoke debt secured by liquid and well-defined assets. The debt holders (lenders) get paid back after death of the borrower or they continue rolling the position and collecting their return (interest income). The only question in the lender's mind is how much leverage to grant on the underlying assets, e.g. blue chip stocks, and what to do in a liquidity crunch when rolling.
anon291 7mo ago
Investment interest is deductible like mortgage interest

PopAlongKid 7mo ago

>People sometimes get into trouble with this if they rapidly depreciate real estate and then sell it. Even if you sell for less than your purchase price it is possible to owe taxes. But in the U.S. you can't rapidly depreciate real estate, it is generally straight-line over 27.5 or 39 years (residential vs. non-residential). The gain on real estate due to depreciation is technically referred to as Section 1250 gain, and if there is no gain (which is calculated against your adjusted basis, not purchase price), then it follows that there is no Sec. 1250 gain (often mistakenly called "depreciation recapture").

jeffreyrogers 7mo ago
No, you can do cost segregation to classify some of the real property as Section 1245 (which is accelerated vs Section 1250). People doing this and then selling is how they get unexpected tax bills.
- MichaelFeldman 7mo ago
  The “unexpected tax bill” usually comes from people not realizing they pulled those deductions forward earlier. Also worth noting, if you don’t sell (or you 1031), that recapture can be deferred, which is why a lot of investors still use cost segregation aggressively. This is a pretty clear breakdown of how 1245 vs 1250 recapture actually works on sale if anyone wants the full picture: https://notaxcompromise.com/cost-segregation/depreciation-recapture/section-1245-vs-1250 https://notaxcompromise.com/cost-segregation/depreciation-re...
- PopAlongKid 7mo ago
  Most of the time 1245 property is not real property, it is personal property, which is why I didn't mention it in this context.
CGMthrowaway 7mo ago
Cost seg

kccqzy 7mo ago

This is exactly why many people became landlords, but changed their mind and found that there is no way out. You might decide one day to buy some investment property, but after a few years when you lost interest in the pursuit, quitting would actually give you a huge tax headache in the form of unrecaptured section 1250 gain. This is unfair. You can quit a W-2 job or a hobby without tax consequences.

jcdavis 7mo ago
Hard to sympathize with the landlord class too much on this one. Everyone knows how depreciation schedule works and gets in to it in no small part because of that deduction benefit + the hopes that via 1031 exchanges etc they can delay it until death.
- kccqzy 7mo ago
  > Everyone knows how depreciation schedule works Everyone is way too strong a word. Unlike a regular job, there is no course or qualification needed to become a landlord. In the Bay Area I know lots of people in tech who bought a house, couldn’t afford mortgage payments (perhaps after a layoff) and decided to rent out parts of their house. Or perhaps just a particularly smooth talking real estate convinced someone to sell their stocks and buy investment property. You might say that not knowing about all housing related costs upfront is evidence of financial illiteracy. You might also say not knowing about depreciation before buying a house is also evidence of financial illiteracy. You might even say committing to a mortgage payment while your own job prospects disappear is evidence of bad risk management. But in real life many people make bad financial decisions, landlords included. Landlords do not inherently have more financial aptitude.
  - jcdavis 7mo ago
    I'll agree that "everyone" is probably an unfair characterization. But the tax benefits of depreciation are wildly touted among real estate investors. If they didn't claim depreciation in prior years they can still get it via Form 3115. Yes this is complicated/annoying to do (almost certainly need a CPA), which you can argue is unfair, but I'm still going to have limited sympathy for anyone DIYing in this space without talking to a professional.