How to convert between wealth and income tax • Hacker News Board

Re: How to convert between wealth and income tax

#661

Post by opo » Sat, May 23, 2026, 5:58 PM UTC

nullocator wrote: post #597

opo wrote: post #564

Earlier quoted context omitted.

The buy, borrow, die idea came from McCaffery in the 90s which was before various IRS sections like 1259 and 7701(o) were codified. Go get a calculator - if you took out a loan and had the interest set a the minimum of the AFR, what would it compound to in 30 years? It would obviously be much higher than just selling stock and paying capital gains on it. The ultra rich do take out loans, and these loans do get repaid…

You're going to have a hard time convincing me the wealthy aren't gaming the tax system after all the reporting and leaks over the last ~40 years. I suspect you are simplifying what's happening quite a bit, not sure if it's intentional or otherwise. But wouldn't the more likely scenario be that you borrow 100m with a 10 year draw at x% interest and then at the end of the 10 years you do a stock sale (some taxes paid)…

>You're going to have a hard time convincing me the wealthy aren't gaming the tax system after all the reporting and leaks over the last ~40 years.

Obviously every person tries to avoid taxes - you don’t have to be rich do do that - but the idea that there are magic banks that loan money and don’t mind waiting decades to get their money back is some kind of weird propaganda.

>...I suspect you are simplifying what's happening quite a bit

People keep saying “buy, borrow, die” as if it is really that simple - like it is that one simple trick that banks and the IRS hate.

>...But wouldn't the more likely scenario be that you borrow 100m with a 10 year draw at x% interest and then at the end of the 10 years you do a stock sale (some taxes paid), pay the interest (interest is generally non-taxable) ...

Your scenario is not “buy, borrow, die” as a core concept of that meme is you take advantage of the stepped-up basis upon death and the estate pays the interest. With your scenario the person imght have an interest payment of 50 million + the original 100 million, so now they have to sell enough stock to pay the 150 million and the 23-36% taxes on the gain (depending on the state they are located in - obviously different for countries other than the USA). That isn’t estate planning, that is hoping your stocks really go up and that the loan doesn’t come due in a downturn like 2008.

>"oh no my art lost value!"

That trick where for example, where someone would donate some painting to a museum and pay someone to say the donation is with N million, might have worked at some point in time, but that kind of thing is pretty much guaranteed to get an audit these days from what I have read and I would be very careful trying to do that.

A variant of the "buy, borrow, die" which some claim is done is basically that a bank essentially becomes a minority shareholder of the estate for giving the money. Though I recall one CPA who dealt in this area replying that none of the family offices he knew would likely be interested in this approach - people like Goldman Sachs are not your friends.

Re: How to convert between wealth and income tax

#662

Post by WaxProlix » Sat, May 23, 2026, 6:00 PM UTC

refurb wrote: post #627

throw0101a wrote: post #490

Earlier quoted context omitted.

> Homeowners already pay a wealth tax. If you're talking about property taxes, then renters pay that as well through their rent (which passes through the landlord before getting to the city/county). * https://realestatemagazine.ca/do-residential-tenants-pay-pro... And is some (many?) cases higher rates than owners: * https://www.renx.ca/renters-often-pay-higher-municipal-taxes...

This isn’t true. Plenty of landlords don’t cover their monthly expenses for providing the housing.

In what sense are landlords "providing" housing? Is there an argument around like, stabilizing a demand floor for new construction or something, or is this one of those weird in-group terms that cover over what might otherwise be seen as a relationship of power or dominance?

Either way, if I rent out my house and pull in $5k/mo but spend $2k/mo on principal, $2k/mo on interest, and $1.5k/mo on miscellaneous costs, that $500 "loss" translates into me paying $500 for $2k in principal value, all while gaining the benefits of solid inflation-indexed real estate growth AND assistance up the amortization schedule. So even cash-flow negative rentals are usually pretty long-run lucrative.

Re: How to convert between wealth and income tax

#663

Post by greedo » Sat, May 23, 2026, 6:06 PM UTC

AnthonyMouse wrote: post #624

greedo wrote: post #492

Earlier quoted context omitted.

Consumption taxes are regressive in general and in particular with the 1%, they simply don't spend enough to have it impact their lifestyles.

This is what parrots continuously say while ignoring that the original problem was that in the existing system they not only don't pay taxes on the money they don't spend, they don't even pay taxes on the money they do spend, because they can borrow what they want to spend instead of using taxable income and then defer capital gains or keep assets in shell corporations. Getting from that to where they at least pay th…

Yes, getting them to pay "something" is a good goal, but if it hurts people who are financially vulnerable is non-optimal.

Re: How to convert between wealth and income tax

#664

Post by whatshisface » Sat, May 23, 2026, 6:13 PM UTC

jeffreyrogers wrote: post #94

whatshisface wrote: post #10

A much more interesting formula would be how to convert between income and income tax - you'd think it worked according to the superficial bracket system, but in fact, it works along the lines of going to 0 at the top. P.S. a wealth tax is a property tax. They have existed in the US since before the income tax (which was originally considered unconstitutional by its opponents).

I think the limit it can reach without carried forward losses is 20% because that's the top long-term capital gains tax rate. The other thing I can think of is if you sell a QSBS business, then your capital gains are taxed at 0, and you wouldn't pay income tax at all on that money either. So it's in theory possible that someone could make millions tax free from selling a business, but that's a rare case and one the t…

You can get a loan from a bank against your assets and spend only the loan. I think that's how it goes to zero.

>So it's in theory possible that someone could make millions tax free from selling a business, but that's a rare case and one the tax code explicitly allows for.

These guys have whole offices working to figure out how their day to day expenses can be converted into stuff like "selling a business." ;-)

Re: How to convert between wealth and income tax

#665

Post by WalterBright » Sat, May 23, 2026, 6:24 PM UTC

jonhohle wrote: post #606

WalterBright wrote: post #478

Earlier quoted context omitted.

The debt doesn't just go away, and interest is paid on it. It's not "free". Etrade's best rate is 10.45%. If your stocks go bust, you're still on the hook for the margin debt.

That’s not how it works, though. Buy, borrow, die doesn’t rely on retail margin rates. It’s closer to 3-5%. Assets are used as collateral for loans that don’t require any repayment until death. Generally the borrower can borrow up to 75% of their collateralized asset, and that loan is not taxed. When they die the assets are passed to heirs and stepped up to their current value as the new cost basis. They’re sold to r…

The 10.4% margin rate is Etrade's best interest rate, and it's only for large amounts. I looked it up.

> When they die the assets are passed to heirs and stepped up to their current value as the new cost basis...no taxes paid on the capital gains

And then your entire estate is taxed at 40%.

> and that loan is not taxed

Of course it is not taxed. A loan is not income, and is not an asset. It's a liability.

> Because the collateralized asset stays invested the entire time, it usually grows faster than the interest that will eventually be paid.

The higher the return, the higher the risk. It is normal practice to borrow money to invest it hoping for higher returns than the interest. It is not a scam.

Re: How to convert between wealth and income tax

#666

Post by jeffreyrogers » Sat, May 23, 2026, 6:27 PM UTC

tony69 wrote: post #355

jeffreyrogers wrote: post #322

Earlier quoted context omitted.

Perpetual trusts are different from irrevocable trusts, which have legitimate use cases. I don't really see how irrevocable trusts would be gotten rid of. In most states all trusts are irrevocable by default and there is a huge body of law dealing with trusts. Getting rid of them is essentially impossible without huge changes in the political/legal system.

By “raising death taxes”, I meant comprehensively, eliminating loopholes, as the sources I linked discuss more at length. Re: irrevocable trust, a cursory search revealed no legitimate use case imo, all use cases I see are proxies to skirt taxes or hide income/wealth. What would you consider a legitimate use case for one? Your point re: case law is well taken, but per [2] up until a few decades ago there was a cat-an…

> What would you consider a legitimate use case for one?

Setting aside money to pay for a relative who can't provide for themselves, protecting assets if you are professional who faces high chance of being sued (e.g. surgeon), providing for children from a first marriage if you get married and predecease your second spouse.

Re: How to convert between wealth and income tax

#667

Post by jeffreyrogers » Sat, May 23, 2026, 6:32 PM UTC

whatshisface wrote: post #664

jeffreyrogers wrote: post #94

Earlier quoted context omitted.

I think the limit it can reach without carried forward losses is 20% because that's the top long-term capital gains tax rate. The other thing I can think of is if you sell a QSBS business, then your capital gains are taxed at 0, and you wouldn't pay income tax at all on that money either. So it's in theory possible that someone could make millions tax free from selling a business, but that's a rare case and one the t…

You can get a loan from a bank against your assets and spend only the loan. I think that's how it goes to zero. > So it's in theory possible that someone could make millions tax free from selling a business, but that's a rare case and one the tax code explicitly allows for. These guys have whole offices working to figure out how their day to day expenses can be converted into stuff like "selling a business." ;-)

There have been a few proposals to close that loophole. The main reason it exists is because debt isn't counted as income since it has to be repaid.

Re: How to convert between wealth and income tax

#668

Post by WalterBright » Sat, May 23, 2026, 6:33 PM UTC

vineyardmike wrote: post #514

WalterBright wrote: post #474

Earlier quoted context omitted.

The value of stocks fluctuates every second. Sometimes wildly.

Weakest of the many weak arguments. Let’s do the bog-standard obvious and sane thing and pick a single point in time, once a year and use the value then. Maybe, i don’t know, close of market on the last trading day of the year. At which point it won’t fluctuate again until the new tax year. Then, we can call it “mark to market” because we’re marking the value to the market at a point in time. Finally, we stop with si…

A friend of mine, a few years ago, had his stock options vest. He didn't sell the stocks. The stocks tanked a few months later. The IRS said he owed income tax on the value of the stocks when they vested.

He owed more tax than his net worth, lost his house, everything, and wound up in a trailer.

He never saw the money he was taxed on.

> bad faith arguments

A person's net worth can have wild gyrations on a daily basis. It's not unusual for a stock to move 10% in a few hours. MSFT dropped something like a third of its value last year. What something is "worth" is an utterly arbitrary notion, and basing taxes on that is inevitably unfair an inequitable. (A lot of effort and handwaving is done by accountants trying to guess at what something is "worth".) Heck, what is your house "worth"? Do you agree with the tax assessor? I once told the assessor that if he believed my house was worth what he assessed it at, I'd sell it to him at a 10% discount and he can flip it for what he thought it was worth. He wouldn't take the deal.

With taxes on income, that is fairly well understood and can be accounted for to the dollar.

Re: How to convert between wealth and income tax

#669

Post by nearbuy » Sat, May 23, 2026, 6:48 PM UTC

klaff wrote: post #123

nearbuy wrote: post #117

Earlier quoted context omitted.

I know this is tangential to your main point, but in the US, you can only give a max of $3,500 to a candidate per election cycle, for each the primaries and general election. To give more financial support, you have to do independent, uncoordinated campaigning for the candidate. So you can spend a million dollars on ads saying to vote for a candidate, but you can't give that money to the candidate's campaign and the…

As one example see million dollar donations to inaugurations.

I wouldn't put that in the same category as campaign donations. That money won't help the candidate get elected. The money goes to the inaugural committee to pay for the event.

I'd put that in the broader category of doing something the president/politician likes in hopes of gaining favor.

With this administration there are even better ways to gain influence and money by doing things the president likes than donating to inauguration ceremonies. Become a known staunch Trump advocate, and you could become the Secretary of Defense, FBI Deputy Director, or head of DOGE. No experience necessary.

Re: How to convert between wealth and income tax

#670

Post by mannanj » Sat, May 23, 2026, 7:38 PM UTC

breakyerself wrote: post #575

credit_guy wrote: post #516

Earlier quoted context omitted.

Sure, the government has that goal too. But the government has many tools, and using taxes for that is using the wrong tool. Or maybe you think that billionaires owe us not only to pay taxes, but also to play nice, and pay those taxes with a smile on their face?

Billionares shouldn't exist. We shouldn't just tax them for the revenue. We should tax them to limit the undemocratic power that comes with excessive wealth.

Agreed. Humans evolved in a tribal, local community leadership system. To have as much wealth as millions of people that you never interact with should not exist as a person. It is against the system principles of humanity; either create a new species and turn the billionaires into them, or balance the system.