131–140 of 348 posts
I borrow against my measly investment portfolio through my local banks "Loan against Securities" account. Interest rate is about 10%. 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.
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>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...
How is this different in principle from software developers using the RSUs in their brokerage accounts to get a loan for a vacation home or a boat? BTW the step-up in basis applies for when regular people die.
If you’re talking about someone with enough RSUs to collateralize a home loan, you’re almost certainly talking about someone in the top 1% of wealth in the US So, uh… it’s not different, no
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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.
Why have taxes at all if the government can just print money?
High inflation causes practical and psychological problems and undermines the appearance of stability of a currency. For one thing, it would be terrible to save any money. So fungible assets like stocks or foreign currency would see a disproportionate demand. You'd be buying and selling stocks just to buy some groceries or a car. Any event like COVID that creates more demand on savings would send the stock market crashing.
Another aspect is that the government would lose the ability to manipulate tax policy. Charity would have no special status, strategic industry would have to be directly subsidized, etc. Government would lose an important lever.
There also would be little reason to accept payment in this government's currency. Why accept the government's rapidly inflating currency when you have no taxes to pay in that currency and would prefer to transact in a stable currency? Why accept a government contract denominated in their own inflationary currency?
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 disagree the framing is deceptive. A big reason this is done is to avoid paying taxes altogether - borrow against your equity, and then when you die your heirs receive a step-up in basis, so the gains are never taxed. To make it worth while you need to have a crap ton of money, such that the interest on your loans is less than the estate taxes you'd pay. Only very, very rich people pay any estate taxes in the first…
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I think this is the core issue for me in these discussion - it is not complex at all. If you sell your securities - you pay a tax - that part is simple. Until they it is "unrealized" - right? > If you write a covered call, did you "use" the asset? Yes > If your broker lends your shares out, are they being used? Yes > What about presenting your brokerage statement as proof of assets to a mortgage banker? Of course not…
> What about--I've done this--showing your brokerage statements to American Express to get a better rate? Of course not You say "there is nothing complex about this" after conceding this loophole the size of a planet. For starters: loan with a covenant that governs further borrowing and requires you to instruct the lender if your marketable assets fall below a certain value. Not technically secured. But not relevant…
You wrote:
> Not technically secured.
For these private bank-style loans backed by liquid equity stocks, are they considered secured or unsecured? Honestly, I don't know.
I borrow against my measly investment portfolio through my local banks "Loan against Securities" account. Interest rate is about 10%. 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.
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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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I disagree the framing is deceptive. A big reason this is done is to avoid paying taxes altogether - borrow against your equity, and then when you die your heirs receive a step-up in basis, so the gains are never taxed. To make it worth while you need to have a crap ton of money, such that the interest on your loans is less than the estate taxes you'd pay. Only very, very rich people pay any estate taxes in the first…
The issue is the step-up in basis, not borrowing against assets. The step-up in basis really is a giveaway. I think that it would make a ton of sense to transfer the basis rather than step it up.