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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)

#61

Post by WillPostForFood »

JumpCrisscross wrote: post #55
bdangubic wrote: post #53

Earlier quoted context omitted.

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 :)

> My gains are realized each year via property tax assessments This strongly depends on jurisdiction. In many (today I learned, not all) assessed value is explicitly different from market value.

Also, totally irrelevant to the capital gains tax you may owe the federal govt when you sell you house.

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

#62

Post by bdangubic »

gruez wrote: post #18
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…

>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...

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

#63

Post by dang »

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…

Ok, we've replacing accessing billions by borrowing against stock in the title above. Thanks!

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

#64

Post by blast »

lesuorac wrote: post #41
dataflow wrote: post #34

Earlier quoted context omitted.

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 curr…

> At that point your stocks (and other assets like houses) have their cost-basis adjusted to the current price.

Is this a special provision that kicks in only on death (and not before)? How long has that been in place?

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

#65

Post by bdangubic »

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]

> Millions of Americans sit on appreciated home asset. Should they be taxed?

You live in China and you do not pay property taxes on your home? If you live in America baby, you are not allowed to own anything - especially not homes. For that "right" you have to pay these things called property taxes and you have to pay them all the time...

Once we get some same thing going for securities maybe we can do some comparisons like that - until then ... :) you are too funny mate, I needed this laugh

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

#66

Post by bdangubic »

JumpCrisscross wrote: post #52
__turbobrew__ wrote: post #29

Earlier quoted context omitted.

My bank will give me a 6 figure line of credit at prime+0.5% because they see all the assets I have (savings, cash, investments, mortgage). The line of credit is indirectly secured against all of the assets my bank can see. Should I be taxed when I use the line of credit my bank extends to me?

What OP is missing is the role of collateral. It becomes more important the more perilous the borrower is or might be. Apple borrows for 20 years unsecured at 31 bps above the U.S. [1][2]. That wouldn't contract much if they offered collateral, because the difference in relative risk is modest to the point of immateriality. Similarly, someone with a century of living expenses in marketable securities really only need…

> TL; DR The rich don't need collateral as much as the middle class and poor.

You really buy this? Elon could just go fetch $44bn from a bank to buy Twitter without anything to back it?

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

#67

Post by bdangubic »

pwg wrote: post #56
bdangubic wrote: post #43

Earlier quoted context omitted.

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...

> Still cannot see how home equity can be compared to borrowing against securities Home equity: borrow money with the home used as collateral - if you default on the loan the bank takes your house to make themselves whole again. Borrow against securities: borrow money with the securities used as collateral - if you default on the loan the bank takes your securities to make themselves whole again. The fact that the ho…

I would agree with this statement 100% if I was also hiding from the government the fact that I own a home when they came to collect property taxes. Since I am not this argument does not hold water.

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

#68

Post by bdangubic »

pwg wrote: post #59
bdangubic wrote: post #21

Earlier quoted context omitted.

There's ways around that through 1031 exchange but yea, only first 250k come home free. my argument still stands though that comparing HELOC to borrowing against stock is a poor analogy

> There's ways around that through 1031 exchange Only if the properties are both used for "trade, business or investment" ( https://en.wikipedia.org/wiki/Internal_Revenue_Code_section_... ). Since your primary residence is not classified as "investment" by the IRS, you can't use a 1031 exchange to defer gains on your primary residence. And a 1031 is a deferral (see cite above), not a "tax free" swap. If you eventuall…

> you can't use a 1031 exchange to defer gains on your primary residence

who says it would be my primary residence when I am about to sell... you never sell your primary residence unless it is an emergency, you move first and make it an investment property and then sell and roll over ...

> If you eventually sell without going through yet another 1031 exchange

You don't of course ever do that. And all this should be in a trust of course...

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

#69

Post by bdangubic »

pwg wrote: post #57
cperciva wrote: post #37

Earlier quoted context omitted.

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?

> Can you sell your house back and forth to your spouse every year to multiply the exemption? If you try you'll likely find yourself being charged with tax evasion once the IRS recognizes what you are doing.

> If you try you'll likely find yourself being charged with tax evasion once the IRS recognizes what you are doing.

Under what law exactly would this "tax evasion" charge be filled (I.MAKE.S.UP(b)(ii)? :)

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

#70

Post by blasphemers »

petermcneeley wrote: post #49
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?

No. You are not allowed to use these loans for investments, you would need a different type of loan for margin trading.
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