5 ms·

If I understand correctly, the "buy borrow die" strategy of tax avoidance hinges on these aspects of the tax code: Buying an asset is not a taxable event. Holdi

by nayuki 7mo ago

If I understand correctly, the "buy borrow die" strategy of tax avoidance hinges on these aspects of the tax code: Buying an asset is not a taxable event. Holding onto an asset and letting it appreciate is not a taxable event. Borrowing money is not a taxable event. Holding an appreciated asset until death will step up its cost basis to the current market value (thus erasing any capital gains taxes), and it can be passed on but large amounts will trigger inheritance taxes.

CGMthrowaway 7mo ago
Yes but why is the Canadian approach more fair than the US approach?
- fer 7mo ago
  Because wealthy people can perform buy borrow die and poor people can't, artificially amplifying generational wealth differences.
  - twoodfin 7mo ago
    You don’t have to be wealthy: Homes get a step up basis on inheritance like any other capital asset, and home equity loans are quite popular. Less common but not obscure financial options include borrowing against your 401(k) or other equities.
    - Groxx 7mo ago
      401k and home ownership count as "wealthy" in many circles. It's not "I can do whatever I want any time" wealth, but it does still mean "this is not an option for people who likely need it the most" which is the real issue.
      - twoodfin 7mo ago
        How are income taxes a serious burden on “people who likely need it the most”? Those who truly need it the most are typically well into the plus column on government transfer payments: On net, the government is paying them far more than they’re paying it.
    - fer 7mo ago
      Talking about homes: if a wealthy person see a depreciation of the equity they have a parachute (more homes, stocks, etc), if middle class sees a depreciation of the equity they're on the street. The risk profile is absolutely not the same.
- toast0 7mo ago
  In the Canadian approach, as I understand it, all capital gains taxes are assessed upon disposition; including disposition at death. In the US approach, capital gains disposed at death avoid capital gains taxes. Here are two similar scenarios where the difference in actions is small, but the difference in net estate distributed to heirs is large. Both scenarios: Parent P buys (split adjusted) 100,000 shares AMZN on Jan 3, 2000 at close for $4.47. Parent P has no other assets. Scenario 1: Parent P sells March 9, 2026 at close for $213.49 per share; realizing $209.02 in capital gains per share, ~ $20.9M capital gains, $21.4M proceeds. Parent P dies March 10, 2026. If cap gains tax is 20% uniformly (which it isn't), ~ $4.2M goes to income tax, the estate at time of death is $17.2M. If estate tax is uniformly 40% of amounts over $15M (which it isn't), the estate tax is about ~ $0.9M, and the net estate is $16.3M Scenario 2: Parent P dies March 10, 2026, without selling. The estate promptly sells at close for $214.33. $21.4M proceeds, ~ $20.9M capital gains, but no capital gains tax is due. Again assuming 40% estate tax over $15M, estate tax is $2.6M and the net estate is $18.8M How is it fair for the heirs of Parent P in scenario 2 to get so much more than in scenario 1 when the circumstances are so similar? If you use actual tax brackets, you could make the example numbers more accurate, but I don't think it will change the results significantly.
  - CGMthrowaway 7mo ago
    Have you considered these factors when considering fairness..? 1) Many estates contain illiquid assets- family farms, small businesses, etc. Forcing a deemed disposition at death can force heirs to sell just to pay the tax bill 2) Death isn't a voluntary transaction, and cannot be forecast well, so we are essentially creating an arbitrary tax event/hardship 3) Determining original cost basis across decades of an ancestor's holdings can create an enormous administrative burden for heirs 4) Bunching all accumulated gains in a single year at death will push the estate into an artificially high marginal tax bracket 5) Taxing gains at death discourages long-term wealth building and pushes people toward consumption instead of investment
    - toast0 7mo ago
      IMHO, these are reasonable things to consider, and I acknowledge the hardships. However, my opinion is that similar circumstances leading the similar outcomes is the most fair, and wiping out unrealized capital gains at death can easily result in similar circumstances having unsimilar outcomes. Specific suggestions or responses to your list: 1) Reasonable alternatives to assessing capital gains tax, due immediately exist. The cost basis could be transfered, as in a gift while living (point 3 applies however); or the tax could be assessed and recorded as a lien on the property, possibly with payment over several years. 2) Death isn't generally voluntary or scheduled or easy to predict a specific date. However, it is easy to forecast that everyone alive today will die at some point. No specific advice other than planning for your estate is something people should probably do once a decade or so. 3) I agree. Especially with assets like homes where cost basis isn't simply the purchase price but also includes improvements. At least for stocks and mutual funds, record keeping requirements for brokerages changed so they have to keep cost basis information in most cases, which helps a lot; but doesn't help for real estate or other capital assets. This is a hard one, and I recognize the value that a step up in basis provides, but I still find it unfair. 4) Yes. It would be nice if there was a way to spread capital gains over many years; not just for the deceased. Perhaps a carryback or carryforward. Or an enhanced 0% capital gains bracket for the deceased or for property disposed upon death; possibly with a carryback to help those who sold capital assets to pay for multi-year end-of-life care and etc. 5) Certainly, avoiding capital gains tax by dieing with unrealized capital gains is an incentive to not sell capital investments. I don't know that it encourages wealth building. Incentivising people to not sell things with unrealized capital gains at end of life causes problems for people too: waiting to sell someone's house, even though they moved into a care home and will never move back distorts the housing market; many people refuse to spend their savings, even when adequate, and instead rely on financial help from relatives or suffer hardships from lack of spending.

by nayuki 7mo ago

CGMthrowaway 7mo ago

Yes but why is the Canadian approach more fair than the US approach?

fer 7mo ago
Because wealthy people can perform buy borrow die and poor people can't, artificially amplifying generational wealth differences.
- twoodfin 7mo ago
  You don’t have to be wealthy: Homes get a step up basis on inheritance like any other capital asset, and home equity loans are quite popular. Less common but not obscure financial options include borrowing against your 401(k) or other equities.
  - Groxx 7mo ago
    401k and home ownership count as "wealthy" in many circles. It's not "I can do whatever I want any time" wealth, but it does still mean "this is not an option for people who likely need it the most" which is the real issue.
    - twoodfin 7mo ago
      How are income taxes a serious burden on “people who likely need it the most”? Those who truly need it the most are typically well into the plus column on government transfer payments: On net, the government is paying them far more than they’re paying it.
  - fer 7mo ago
    Talking about homes: if a wealthy person see a depreciation of the equity they have a parachute (more homes, stocks, etc), if middle class sees a depreciation of the equity they're on the street. The risk profile is absolutely not the same.
toast0 7mo ago
In the Canadian approach, as I understand it, all capital gains taxes are assessed upon disposition; including disposition at death. In the US approach, capital gains disposed at death avoid capital gains taxes. Here are two similar scenarios where the difference in actions is small, but the difference in net estate distributed to heirs is large. Both scenarios: Parent P buys (split adjusted) 100,000 shares AMZN on Jan 3, 2000 at close for $4.47. Parent P has no other assets. Scenario 1: Parent P sells March 9, 2026 at close for $213.49 per share; realizing $209.02 in capital gains per share, ~ $20.9M capital gains, $21.4M proceeds. Parent P dies March 10, 2026. If cap gains tax is 20% uniformly (which it isn't), ~ $4.2M goes to income tax, the estate at time of death is $17.2M. If estate tax is uniformly 40% of amounts over $15M (which it isn't), the estate tax is about ~ $0.9M, and the net estate is $16.3M Scenario 2: Parent P dies March 10, 2026, without selling. The estate promptly sells at close for $214.33. $21.4M proceeds, ~ $20.9M capital gains, but no capital gains tax is due. Again assuming 40% estate tax over $15M, estate tax is $2.6M and the net estate is $18.8M How is it fair for the heirs of Parent P in scenario 2 to get so much more than in scenario 1 when the circumstances are so similar? If you use actual tax brackets, you could make the example numbers more accurate, but I don't think it will change the results significantly.
- CGMthrowaway 7mo ago
  Have you considered these factors when considering fairness..? 1) Many estates contain illiquid assets- family farms, small businesses, etc. Forcing a deemed disposition at death can force heirs to sell just to pay the tax bill 2) Death isn't a voluntary transaction, and cannot be forecast well, so we are essentially creating an arbitrary tax event/hardship 3) Determining original cost basis across decades of an ancestor's holdings can create an enormous administrative burden for heirs 4) Bunching all accumulated gains in a single year at death will push the estate into an artificially high marginal tax bracket 5) Taxing gains at death discourages long-term wealth building and pushes people toward consumption instead of investment
  - toast0 7mo ago
    IMHO, these are reasonable things to consider, and I acknowledge the hardships. However, my opinion is that similar circumstances leading the similar outcomes is the most fair, and wiping out unrealized capital gains at death can easily result in similar circumstances having unsimilar outcomes. Specific suggestions or responses to your list: 1) Reasonable alternatives to assessing capital gains tax, due immediately exist. The cost basis could be transfered, as in a gift while living (point 3 applies however); or the tax could be assessed and recorded as a lien on the property, possibly with payment over several years. 2) Death isn't generally voluntary or scheduled or easy to predict a specific date. However, it is easy to forecast that everyone alive today will die at some point. No specific advice other than planning for your estate is something people should probably do once a decade or so. 3) I agree. Especially with assets like homes where cost basis isn't simply the purchase price but also includes improvements. At least for stocks and mutual funds, record keeping requirements for brokerages changed so they have to keep cost basis information in most cases, which helps a lot; but doesn't help for real estate or other capital assets. This is a hard one, and I recognize the value that a step up in basis provides, but I still find it unfair. 4) Yes. It would be nice if there was a way to spread capital gains over many years; not just for the deceased. Perhaps a carryback or carryforward. Or an enhanced 0% capital gains bracket for the deceased or for property disposed upon death; possibly with a carryback to help those who sold capital assets to pay for multi-year end-of-life care and etc. 5) Certainly, avoiding capital gains tax by dieing with unrealized capital gains is an incentive to not sell capital investments. I don't know that it encourages wealth building. Incentivising people to not sell things with unrealized capital gains at end of life causes problems for people too: waiting to sell someone's house, even though they moved into a care home and will never move back distorts the housing market; many people refuse to spend their savings, even when adequate, and instead rely on financial help from relatives or suffer hardships from lack of spending.