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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)

#81

Post by cryptonector »

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.

> They're loans so where do they get the income to pay off the interest?

They borrow more, against other stock. Works as long as you have enough stock.

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

#82

Post by JumpCrisscross »

yieldcrv wrote: post #79
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…

Your broker isn't letting you withdraw margin lending. You cant use it for consumptive purchases. But its true, you can find a real lender for your stocks. You dont have to be rich. Its not controversial, you have to pay it back. There are other quirks the rich have: Already post-tax assets to pay something off They are in control of the stock, they can issue more new shares for themselves or cause the corporation to…

> broker isn't letting you withdraw margin lending. You cant use it for consumptive purchases.

There is no rule prohibiting the withdrawal of margin cash. Or, for that matter, short selling and withdrawing that cash. As long as you're Reg T compliant, the Feds don't care. (If you're a family office, even better--you might get to be treated as an institution.)

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

#83

Post by js2 »

blast wrote: post #64
lesuorac wrote: post #41

Earlier quoted context omitted.

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?

Yes. It's been part of the tax code since 1921.

https://www.fidelity.com/learning-center/personal-finance/wh...

https://greenleaftrust.com/missives/stepped-up-basis-a-short...

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

#84

Post by yieldcrv »

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…

what you’re missing is that its not controversial or a loophole

sometimes they pay it off, they just dont have to do that every year

yes, you can do it too, but you would need income to pay it

they already have other assets post tax to pay with, if it ever comes down to that

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

#86

Post by JumpCrisscross »

TMWNN wrote: post #24
taxman22 wrote: post #6

Earlier quoted context omitted.

Schwab Pledge Asset Line (PAL) is SOFR + (2.40% to 4.4%). SOFR today is 4.81%.

Is Schwab known for being unusually low with its rate for this product? Vanguard is 11-13%, consistent with what mixmastamyk said. https://investor.vanguard.com/client-benefits/margin?msockid... > In any case, my Amex line of credit charges 6%, and I am preapproved for an Amex personal loan for 8.98%. I presume others on HN can get comparable or better.

> Is Schwab known for being unusually low with its rate for this product?

The Schwab rate sounds high. Fidelity, for instance, charges SOFR + 190 to 310bps [1]. I haven't had an SBLOC for a few years, but I remember Stifel charging no more than 200 bps over Libor.

[1] https://www.fidelity.com/lending/securities-backed-line-of-c...

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

#87

Post by creer »

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…

Your brokerage will likely lend you money but you will be disappointed by the rate. It is not "very low". Not even "low". At least not where we are now in the interest rates cycle.

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

#88

Post by JumpCrisscross »

bdangubic wrote: post #71
JumpCrisscross wrote: post #55

Earlier quoted context omitted.

> 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.

The fact is though if you live in America are paying property taxes on your home, you are NOT hiding from the IRS the fact that you do - you are not saying "sorry, I don't really own this home and I won't be paying anything to you until such later time when my ownership will be revealed at the grand sale at which point I'll pay some taxes" With "unrealized" stock gains you are doing just that - hiding ownership so yo…

> if you live in America are paying property taxes on your home

I own in Wyoming. My property's assessed value is like 1/10th the market rate. My neighbour--just checked!--who owns a property like ten times my size, across two plots, and far more lavish than my own has an assessed value similar to mine. The real estate records even have a line item for "actual value" separate from assessed value.

Not familiar with the specifics, but I know California and New York similarly have assessed values that are entirely unmoored from what the property is actually worth.

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

#89

Post by mixmastamyk »

taxman22 wrote: post #6
mixmastamyk wrote: post #3

Earlier quoted context omitted.

Yes, margin can be dangerous at times and is not that cheap. About 6% over fed rates, or 11-13% right now. Over $500k you'll probably get a better deal.

Schwab Pledge Asset Line (PAL) is SOFR + (2.40% to 4.4%). SOFR today is 4.81%.

8ish percent is good but not fantastic, after years of mortgages lower than that.

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

#90

Post by mixmastamyk »

mikeyouse wrote: post #80
blast wrote: post #64

Earlier quoted context omitted.

> 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?

It’s called the stepped up basis and yes, only applies to your estate. A married couple who bought a house in Palo Alto for $250k that’s now worth $5.25M and who bought $250k of Apple stock that’s now worth $20.25M would have a Federal tax bill of ~$5 million if they sold those assets and gave the cash to their kids. If however they were hit by a bus on the way to their accountants office, and the kids inherited the…

^^^ This is the real loophole, the rest is a distraction.
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