The dodgy part is what happens after someone dies. The stocks get a one-time relief from capital gains as it moves to the heir. This gives opportunity for the heirs (or the estate) to sell the stocks to pay back the loan. That is the loophole.
The key here is that you need enough wealth to keep borrowing for rest of your life without touching your principle.
Too late to edit my comment, but one other thing:
>The stocks get a one-time relief from capital gains as it moves to the heir. This gives opportunity for the heirs (or the estate) to sell the stocks to pay back the loan. That is the loophole.
Yes, this step-up in basis happens because the estate is charged estate tax. Charging capital gains AND estate tax doesn't make sense, estate tax is typically higher than capital gains tax.
This is a key piece a lot of people don't understand.
> Charging capital gains AND estate tax doesn't make sense, estate tax is typically higher than capital gains tax.
They should be multiplicative. Everyone is supposed to pay capital gains. And everyone is supposed to pay the estate tax. They're both percentage taxes. It's not supposed to be "pick one".
>They should be multiplicative.
That doesn't make any sense.
>Everyone is supposed to pay capital gains.
Not true. You don't pay if you have capital losses, nor do you pay if you have capital gains in tax sheltered accounts, etc.
>They're both percentage taxes.
No one claimed otherwise.
>It's not supposed to be "pick one".
That's exactly how it is in many cases, even income taxes have been that way for decades (though SALT deduction now limited). Read up on double taxation and why it's typically avoided.
>The key here is that you need enough wealth to keep borrowing for rest of your life without touching your principle.
Correct. The OP likely knows this. Or they're totally ignorant to it. The fact that they think joe blow can execute the aforementioned strategy is vexing.
>Correct. The OP likely knows this.
Of course I know this.
>The fact that they think joe blow can execute the aforementioned strategy is vexing.
You don't understand the aforementioned strategy, nor do you understand wealth taxes vs estate taxes.
>The stocks get a one-time relief from capital gains as it moves to the heir.
Yes, that estate/inheritance taxes need reworking. This is not a wealth tax as discussed, this is an estate/inheritance tax which is different.
>This gives opportunity for the heirs (or the estate) to sell the stocks to pay back the loan. That is the loophole.
The loans are made whole by the estate, no one is taxed on proceeds from a loan, nor should they be.