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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 f

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

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