111–120 of 348 posts
My father was using this feature for past 15 or so years from same bank. We are solidly middle class in India.
The only difference between what we do and what rich folk get is probably lower interest rates and higher percentage of loans against the securities value.
Spoiler: the same way you can access your home equity without selling your house.
The fact that we can tax houses, the main form of wealth for most people, proves that wealth taxes (levied on other forms of wealth) would be just fine.
Earlier quoted context omitted.
>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.
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...
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?
By borrowing against their holdings. The framing is deceptive. You can do this too: there is no requirement to have billions in collateral. 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. The gotcha is market risk. If there's another crash akin to the housing crisis - and there will be - the bank will liquidate your ho…
There is another difference that is related to risk. Larger loans allow access to lower risk opportunities. If I had many millions in stocks, and I was greedy for more, I would borrow against it to develop residential real estate in a high rent neighborhood. Yes, there's some risk, but it's as close as you can get to buying a money fountain. I'd be very confident that the rents from the building would pay back the mo…
Owning stocks is zero effort. You might glance at your results from time to time. Your fund manager does the heavy lifting (and gets a small % fee for it.)
Owning a property is a pretty constant stream of work. Organizing maintainence. Dealing with complaints. Occasionally evicting non-payers. Finding new tenants. Filtering applicants to filter out the non-payers.
It's so much work you'll likely offload this onto someone rise to do. The cost is not insignificant. (Neither is maintainence.)
The returns may be good, but its not "passive income".
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>With just a "slight" difference in that you do not have pay taxes on the gains you made on your house (what you paid vs. what it is worth now) when you sell it ...only up to 250k if you're in the US. https://www.irs.gov/taxtopics/tc701
Is that 250k over your lifetime or 250k per sale? Can you sell your house back and forth to your spouse every year to multiply the exemption?
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It’s called the stepped up basis and yes, only applies to your estate. A married couple who bought a house in Palo Alto for $250k that’s now worth $5.25M and who bought $250k of Apple stock that’s now worth $20.25M would have a Federal tax bill of ~$5 million if they sold those assets and gave the cash to their kids. If however they were hit by a bus on the way to their accountants office, and the kids inherited the…
This is because for a long time, the USA does not tax assets other than real estate. Our tax system is structured around the fundamental idea of taxation occuring on transactions, whether that's income in exchange for labor, income resulting from the sale on (non-real-property) assets etc. I'm not sure if this is a good thing (it might be, it might not) but it's the way it is.
The obvious example is family farms, or indeed the family house. Capital taxing the asset on death means a (potentially large) tax bill happens in many cases this can't be paid without selling the asset.
If the sale was to another family looking for a farm, then that could be argued is neutral. But it won't be. It'll be sold to a mega-corp because they have more money to spend. So in a couple generations you kill off areas that are primarily small farms.
This doesn't just apply to property. The family silver collection, the family business, the list goes on.
Inheritance tax is tricky. Just passing money down entrenches an aristocratic class. Taxing it though destroys value in all kinds of areas.
By borrowing against their holdings. The framing is deceptive. You can do this too: there is no requirement to have billions in collateral. 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. The gotcha is market risk. If there's another crash akin to the housing crisis - and there will be - the bank will liquidate your ho…
I have not found one that will offer a very low rate, have you?
For example here are Schwab's rates for a loan against equity:
https://www.schwab.com/pledged-asset-line/rates
For 500K-1M rate is SOFR + 3.4%, so about 8.2%
For multimillionaires it gets better at SOFT + 2.4%, or about 7.2%
Not bad in this market but not one I'd call "very low"
Possibly there's an unpublished rate for billionaires, there usually is.
Earlier quoted context omitted.
There is another difference that is related to risk. Larger loans allow access to lower risk opportunities. If I had many millions in stocks, and I was greedy for more, I would borrow against it to develop residential real estate in a high rent neighborhood. Yes, there's some risk, but it's as close as you can get to buying a money fountain. I'd be very confident that the rents from the building would pay back the mo…
I've owned property to rent in the past. I feel it's worth pointing out to folks keen on this route that, while profitable, it's a Lot of work. Owning stocks is zero effort. You might glance at your results from time to time. Your fund manager does the heavy lifting (and gets a small % fee for it.) Owning a property is a pretty constant stream of work. Organizing maintainence. Dealing with complaints. Occasionally ev…
Earlier quoted context omitted.
There is another difference that is related to risk. Larger loans allow access to lower risk opportunities. If I had many millions in stocks, and I was greedy for more, I would borrow against it to develop residential real estate in a high rent neighborhood. Yes, there's some risk, but it's as close as you can get to buying a money fountain. I'd be very confident that the rents from the building would pay back the mo…
Wanna go halfsies on some residential real estate in a high rent neighborhood?
Earlier quoted context omitted.
Home equity loans also taxed as realized gains?
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 :)
You are confusing two very different things. You'll realize the gains (and have to pay taxes on) your house value increase only when you sell it. The fact that you were paying property taxes on it all along while owning it has nothing to do with that.