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Buy, Borrow, Die – Explained

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Re: Buy, Borrow, Die – Explained

#461

Post by jldugger »

TrackerFF wrote: post #85

It always puzzled me how tax-adverse some wealthy people are. I'm not talking about the wealthy people that have 100% of their wealth tied up to company (stock) that they operate - but the wealthy people that are just asset-rich, with zero operational duties. Their wealth is handled by wealth managers, they probably don't even know what they own. But minimizing taxes and hoarding wealth is priority number 1.

It's literally my biggest annual expense. So if I spend any brain power to optimize expenses, this is the biggest easiest target.

Re: Buy, Borrow, Die – Explained

#462

Post by wmf »

hbrn wrote: post #458
profsummergig wrote: post #444

Earlier quoted context omitted.

When I first read about the reset (step-up) in basis after death, I couldn't believe this was the law. Why should inheriting a property reset the basis? What a ridiculous notion. Someone's already getting an asset for free (inheriting it), and we're further subsidizing the tax liability on it. Taxes that were due to the government are wiped out.

AFAIK inflation is one of the reasons. If an asset was worth $50k in 1950, and is now worth $100k, it would feel really weird when capital gains tax is collected on an asset that actually lost more than 80% of it's value over the years.

If an asset is appreciating slower than inflation, that's on you. You should have sold it and put the money in something better.

Re: Buy, Borrow, Die – Explained

#463

Post by wmf »

johngladtj wrote: post #453
wmf wrote: post #42

If this is accurate, it finally explains something I've been asking about for years: The loan is paid back after the step-up in basis. That's the loophole. If the loan was paid back before step-up, the estate would still have to pay capital gains tax.

Pro-tip, the step up basis happens after the estate tax, which is much higher than the capital gains tax, and only applies to the top 1%

That's what I would assume, but it still seems like loans should be paid back first (which may trigger selling assets which would trigger capital gains tax), then estate tax should be levied on anything left, then step-up in basis. If if works this way, there's no loophole.

Re: Buy, Borrow, Die – Explained

#464

Post by hbrn »

wmf wrote: post #462
hbrn wrote: post #458

Earlier quoted context omitted.

AFAIK inflation is one of the reasons. If an asset was worth $50k in 1950, and is now worth $100k, it would feel really weird when capital gains tax is collected on an asset that actually lost more than 80% of it's value over the years.

If an asset is appreciating slower than inflation, that's on you. You should have sold it and put the money in something better.

First of all, this is a really dumb point. If it is so easy to find good assets, why don't you buy those, take the loan against those like the reddit post suggests, then buy even more assets with those money, take another loan, and just keep doing that to generate infinite amount of money? The only reason stopping you is admitting that every asset carries a risk.

But whether it's on you or not is beyond the point. Being taxed on top of a loss is not a good thing.

Also there are plenty of reasons not to sell a depreciating asset. For example, CEO willing to maintain control over company, or simply not wanting to send bad signals to the public by selling their shares (because that would depreciate the asset even more).

A better argument would be to adjust basis for inflation instead of resetting it.

Re: Buy, Borrow, Die – Explained

#465

Post by chii »

mrkeen wrote: post #161
fordacious wrote: post #7

>Let's assume the asset appreciates at an annual rate of 8 percent Quite a lot of value creation going on. Good on them!

Indeed, someone with $10B who increased that to $10.8B over a year earned 80M. That's like $40K/hr if they take no sick days or time off to go yachting. Their labour must be super important.

> must be super important.

of course it is important. They spent $10B dollars on plant and equipment, and/or R&D, and it generates more value over time (which translates to the $80[0]M earned).

Why would "labour" only be valuable if it was the person _doing_ the work?

Re: Buy, Borrow, Die – Explained

#466

Post by chii »

IncreasePosts wrote: post #81
t0mas88 wrote: post #75

Earlier quoted context omitted.

What value creation? This could just be a simple Vanguard S&P 500 ETF like everyone else's.

Might as well take out the biggest margin loan possible and invest in the S&P 500 if that is the case.

That's exactly what a lot retirement funds would do. And it is a good way to invest.

Re: Buy, Borrow, Die – Explained

#467

Post by delta_p_delta_x »

jpfr wrote: post #285
delta_p_delta_x wrote: post #199

Earlier quoted context omitted.

80K euro might sound like a lot until you realise it is around the combined annual salary for two mid-level employees in Western Europe, and for about a team of four to five in Eastern Europe. To ask a team of designers to do brand and marketing research and design a new logo for a big organisation that will use said logo everywhere is not a 1K euro freelancer job. To be fair, the new logo is a bit crap, but in the g…

You assume that the salary is what it costs for the company to have an employee. You need to at least double that. There is overhead for the person itself (employer subsidized healthcare, office space, equipment) and there is overhead within the organization. Like a secretary and accounting departments who cannot be billed to a client. And management layers of course… Most likely the 80k are enough to cover one perso…

Oh without a doubt I was underestimating how much a single employee costs a company (and therefore their clients too).

But I believe my point stands regardless—80K is very little money indeed from a group perspective.

Re: Buy, Borrow, Die – Explained

#468

Post by littlestymaar »

throwaway22032 wrote: post #422
littlestymaar wrote: post #417

Earlier quoted context omitted.

> Is it not entirely logical that a cohort that actually pays attention to where 20%, 30%, 40% of their money is going ends up wealthier than one that doesn't? Many if not most rich never got rich, they happened to be born rich. In the situation I'm talking about, the said family has been wealthy for two centuries. And my in-laws are significantly less well-off than the generation before. Their ancestors may have bee…

It seems that you agree that they are wealthier than they would otherwise be because they try to minimise taxes. The rest of your comment seems to be a political commentary on whether inheritance is legitimate. You're entitled to your opinion, but it comes across a bit like sour grapes to me.

> It seems that you agree that they are wealthier than they would otherwise be because they try to minimise taxes.

I've written the opposite actually. They would be much better off if they tried doing something else with their time rather than spending it avoiding taxes. The amount of effort (and money actually, tax attorney aren't cheap) would be much better invested elsewhere.

Edit, a fun fact I thought about: they are donating to charity so that 66% of the donation could be deduced from taxes. And yes, their main motivation is tax exemption not the charity cause (which is a nice side effect). Which means they are willing to pay a 50% premium to give money to somebody else than the state. Now talk about rationality and how it makes them richer.

Re: Buy, Borrow, Die – Explained

#469

Post by valval »

aguaviva wrote: post #447
valval wrote: post #445

Earlier quoted context omitted.

The numbers are all out there, behind 1 minutes of searching. My wife's side of the family is entirely Russian, so I have some basic knowledge on the subject.

The numbers are all out there, behind 1 minutes of searching. And they speak decidedly against your claims: https://hdr.undp.org/system/files/documents/hdr2020.pdf Ukraine's development ranking is classed as 'High', while Namibia and Zambia are both classed as 'Medium'. My wife's side of the family is entirely Russian, so I have some basic knowledge on the subject I have direct knowledge of the country as well. Your…

A handy report crafted by biased people in some unproductive sinecures, but the numbers really do speak for themselves.

Re: Buy, Borrow, Die – Explained

#470

Post by valval »

CleanRoomClub wrote: post #425
valval wrote: post #396

Earlier quoted context omitted.

The line of thinking we’re trying to get across to you here is best put like this I find; even if 99% of the village thinks it’s a good idea to march into the most productive individual’s house and rob it clean, it doesn’t become morally right to do so.

I like Ayn Rand as much as the next HN consumer, but let’s be a bit more judicious in how we apply her ideals. If you earned your wealth through driving on public roads, after receiving a public education, without it actually being blatantly stolen due to a public police force, etc etc etc. Then it is also your responsibility to pay for these items so that they dan continue to be used for future generation.

If you're in eternal debt to the society you were fortunate or unfortunate enough to be born into since before you were lucid, when exactly is the cycle going to be broken?

Public roads can be taxed by use. Public education should be paid by people who participate.

You apply an "if" conditional here in a manner that's morally correct in my opinion. It's just that even if you didn't partake in those activities, you're forced to pay for them all the same. That's the issue.

You can move out of the country of course and find one that's more politically suitable, but the bottom line in my mind is that people in most societies are so different from each other that democracy just doesn't work at the scale it's trying to be applied. Sure, deciding what your society should collectively strive for at a neighborhood level might be possible. City level is reaching, and state or country level is ludicrous.

I think the only responsibility at the federal level should be watching the borders, and I can't convince myself otherwise no matter what material I read.

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