After TaxTax Playbook

Tax Playbook · Investment tax wins

Buy, borrow, die

Instead of selling winning stocks and paying tax, wealthy investors borrow against them for spending money — loan proceeds are not income, so no tax is owed. Say you own $1 million of stock with an $800,000 gain: borrowing $200,000 costs nothing in tax, but selling would trigger about $190,000 in taxes. When the owner dies, heirs get a stepped-up cost basis to the value at death, so the $800,000 gain leaves the tax system entirely. The catch: the loan must be repaid with interest, the interest usually is not deductible when it funds personal spending, and a market crash can trigger a margin call that forces sales at the worst time.

Good for: Investors with big gains in a brokerage account who need cash but do not want to sell.

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Educational summary, not tax advice. Limits and rules change — confirm current law with your tax adviser.