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The richest people borrow against their stock (2021)

forbes.com

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Re: The richest people borrow against their stock (2021)

#31

Post by splintercell »

bdangubic wrote: post #14
JumpCrisscross wrote: post #9

Earlier quoted context omitted.

> as soon as you try to use it as realized in ANY way you should be taxed immediately You're trying to define a rule based on intent. That's doable. We do it all the time. But it tends to get messy, fast. How do you differentiate investment leverage from realizing gains through borrowing? If you track distributions, does a commensurate reduction in contributions count? What if the borrowing is done against the portfo…

It is not messy at all if you use KISS. You do not differentiate ever - ANY usage of unrealized gains makes them realized. Very simple to implement but of course won't ever happen :)

No offense, but I don't believe you understand the nuance of the thing you're talking about.

It is very easy to say 'any attempt by a murderer to flee the state, and he should be thrown back into the jail' for someone with limited education about western law and order.

This is exactly how you sound.

Re: The richest people borrow against their stock (2021)

#32

Post by bdangubic »

JumpCrisscross wrote: post #17
bdangubic wrote: post #14

Earlier quoted context omitted.

It is not messy at all if you use KISS. You do not differentiate ever - ANY usage of unrealized gains makes them realized. Very simple to implement but of course won't ever happen :)

> ANY usage of unrealized gains makes them realized What does "usage" mean? If you write a covered call, did you "use" the asset? If your broker lends your shares out, are they being used? What about presenting your brokerage statement as proof of assets to a mortgage banker? What about--I've done this--showing your brokerage statements to American Express to get a better rate? I'm still only talking about publicly-t…

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'd raise taxes on the middle class who can't afford advice This is always funny to me, middle class :) For sure it would not affect the middle class and there.is not need to "afford advice" when there is nothing complex about this that needs an advice of anyone.

> Because at the end of the day, what you're trying to differentiate is intent Not at all, it is not "intent" at all - it is just very, very simple... You can own stock and keep it there - no problems. You want to use it for ANYTHING, you pay taxes on it.

Re: The richest people borrow against their stock (2021)

#33

Post by cperciva »

JumpCrisscross wrote: post #10
bdangubic wrote: post #5

Earlier quoted context omitted.

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 and you are paying HEFTY property taxes on your current home worth each and every year. Very poor analogy...

> and you are paying HEFTY property taxes on your current home worth each and every year Is there any jurisdiction where the assessed value of a home is anywhere close to its market value? (You're still correct. But OP's observation, that this is the stock equivalent of a reverse mortgage, is moreso.)

Pretty close in British Columbia. When you adjust for month to month shifts in the market (aka everyone's homes have appreciated X% since the last annual property tax assessment) the vast majority of sales occur within 5% of the adjusted assessed value. (And many of the ones which aren't within that range are wildly different because e.g. the property assessment was on an empty lot and the property is now being sold with a house on it.)

Re: The richest people borrow against their stock (2021)

#34

Post by dataflow »

doe_eyes wrote: post #2

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…

This explanation never made sense to me. Say someone gives you a $1M loan. Holy cow, it's not taxed, what a loophole!

But wait, this was a loan, not a gift. So don't you eventually have to pay back the >$1M later from taxed income? So you still end up paying taxes on $1M either way? How in the world does this bypass taxes?

Edit: To people bringing back the "buy, borrow, die" story:

(a) Yes, I saw that a couple months ago too. It was very hand-wavy in some crucial places. And there were quite a few people pointing out flaws with the reasoning. [1] [2]

(b) If dying is part of the the strategy then why is it omitted so often? (My whole point with the comment here is that the aforementioned explanation is inadequate.)

(c) If having enough money to pay off your collateral-secured debts until your death is a requirement for this to work then why do so many people claim "you can do it too"? Who has that kind of money sitting around? The "Buy, Borrow, Die" post explicitly said you can't get that kind of loan until you have $300M in assets.

[1] https://news.ycombinator.com/item?id=41411737

[2] https://news.ycombinator.com/item?id=41410808

Re: The richest people borrow against their stock (2021)

#35

Post by hn_throwaway_99 »

doe_eyes wrote: post #2

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 place because a couple's estate tax exemption is currently over $27 million.

Re: The richest people borrow against their stock (2021)

#36

Post by bdangubic »

eadmund wrote: post #25
bdangubic wrote: post #7

Earlier quoted context omitted.

> 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. 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 borr…

Why should it be illegal? It’s not a realised gain. It has to be paid off … with money which has to come from somewhere (and be taxed as income or realised gains or whatever). What reason do you have for wanting it to be illegal, other than not liking it?

How is it not realized? When I can use it as "realized" to borrow against it? When it comes to paying taxes I go "sorry Uncle Sam, this is fictitious, I don't really have this" but then I head over to the bank and go "look at my brokerage accounts, I have ALL THIS MONEY, lemme borrow against this now all-of-sudden realized money..."

Re: The richest people borrow against their stock (2021)

#37

Post by cperciva »

gruez wrote: post #16
bdangubic wrote: post #5

Earlier quoted context omitted.

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 and you are paying HEFTY property taxes on your current home worth each and every year. Very poor analogy...

>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?

Re: The richest people borrow against their stock (2021)

#38

Post by unethical_ban »

zooq_ai wrote: post #26
bdangubic wrote: post #7

Earlier quoted context omitted.

> 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. 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 borr…

[flagged]

One could argue stocks be handled differently than homes. Or, to better capture the spirit of the proposal, one would progressively tax unrealized gains used for collateral.

Re: The richest people borrow against their stock (2021)

#39

Post by bdangubic »

splintercell wrote: post #31
bdangubic wrote: post #14

Earlier quoted context omitted.

It is not messy at all if you use KISS. You do not differentiate ever - ANY usage of unrealized gains makes them realized. Very simple to implement but of course won't ever happen :)

No offense, but I don't believe you understand the nuance of the thing you're talking about. It is very easy to say 'any attempt by a murderer to flee the state, and he should be thrown back into the jail' for someone with limited education about western law and order. This is exactly how you sound.

This is exactly what the billionaires have been able to convince the masses :) It would be "very hard, impossible" to implement a system in which you cannot for the purposes of paying taxes claim you do not have some sht while turning around and heading over to the bank to get a boatload of money borrowing against that same sht - need a genius to figure that out...

Re: The richest people borrow against their stock (2021)

#40

Post by JumpCrisscross »

bdangubic wrote: post #32
JumpCrisscross wrote: post #17

Earlier quoted context omitted.

> ANY usage of unrealized gains makes them realized What does "usage" mean? If you write a covered call, did you "use" the asset? If your broker lends your shares out, are they being used? What about presenting your brokerage statement as proof of assets to a mortgage banker? What about--I've done this--showing your brokerage statements to American Express to get a better rate? I'm still only talking about publicly-t…

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 if you're lending tens of millions to a billionaire--plenty of firms will provide this. Next up: loan to heirs. Next up: unsecured loans at preferential rates if you store your securities with the lender. (This is already a thing.)

> want to use it for ANYTHING, you pay taxes on it

Swapping "use" for "usage" doesn't address the fundamental issue.

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