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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)

#41

Post by lesuorac »

dataflow wrote: post #34
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…

You just delay selling the stocks until death.

At that point your stocks (and other assets like houses) have their cost-basis adjusted to the current price. So the capital gains tax on your assets are $0 as their cost basis is the same as the price so the appreciate is $0. If _you_ sold the stocks before your death then likely there would be a large gap between the cost-basis (price you bought the stock) and the current price resulting in a large capital gains tax.

So, when your estate sells the stocks to pay back the loan they pay the applicable taxes on the $0 and then uses the remaining proceeds to pay back the loan.

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

#43

Post by bdangubic »

pwg wrote: post #15
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...

> do not have pay taxes on the gains you made on your house (what you paid vs. what it is worth now) Absent a few exceptions, at least in the US you very much do have to pay capitol gains on the increase in value of your house when you sell it. And those exceptions typically amount to a deferral of the tax rather than a "tax free" gain. The one sure way to not pay capital gains on one's house is to hold it until you…

Yea, you do if you make over 250k in profit but you can roll that over with 1031. Still cannot see how home equity can be compared to borrowing against securities - there are a TON of taxes that we pay for owning a home and none for owning a security...

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

#44

Post by WillPostForFood »

bdangubic wrote: post #36
eadmund wrote: post #25

Earlier quoted context omitted.

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..."

Home equity loans also taxed as realized gains?

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

#45

Post by bdangubic »

dataflow wrote: post #34
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…

Buy, Borrow, Die FTW - https://equifund.com/blog/buy-borrow-die

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

#46

Post by zie »

theogravity wrote: post #27

They're loans so where do they get the income to pay off the interest? If I attempt something like this via Interactive Brokers (which generally has the best rates), it would cost me 5-6%: https://www.interactivebrokers.com/en/trading/margin-rates.p... I'd figure if you're a billionaire, with multi-millions in collateral, the rate is probably significantly lower, but they still need to pay down the interest.

Well, if you are worth billions and only spending millions, then you can borrow for a very, very long time before the interest payments get hard to pay. If you do end up in that position, you can always borrow more to pay the interest(the US govt does this).

It's nothing magic here, you even get to deduct the interest you end up paying on your taxes usually.

The rates probably not that much lower, the lenders still have to make money and they really don't like to get stuck holding the bag. They have risk departments who (hopefully) carefully analyze how much borrowing they are doing and making sure they are the ones holding all the cards if it ever comes crashing down.

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

#47

Post by [deleted] »

bdangubic wrote: post #39
splintercell wrote: post #31

Earlier quoted context omitted.

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 sh t while turning around and heading over to the bank to get a boatload of money borrowing against that same sh t - need a genius to figure that out...

[deleted]

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

#48

Post by beezle »

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…

Keep in mind that the bench mark rate is almost always something akin to bills so is a very short time horizon. That may be great or not so great compared to what rate you might get on say a 5/10/15 yr collaterlized loan.

ref: https://www.interactivebrokers.com/en/trading/margin-rates.p...

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

#49

Post by petermcneeley »

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…

If I have 1 million in some stock can I go get a 1 million loan from the bank with this as collateral? If so can I reinvest this million in the same stock again and then goto the bank again etc?

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

#50

Post by [deleted] »

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…

[deleted]
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