How do wealthy people like Elon Musk avoid paying taxes on their wealth?

What you're describing is called the "buy, borrow, die" strategy that wealthy individuals use. Here's how the full cycle works: First, they get compensated in stock options rather than cash salary. This means they're only taxed on the initial grant value, not the growth. Then they take loans against their stock portfolio at very favorable interest rates (often 1-3%) because they're considered low-risk borrowers. For your specific question about repayment: They typically don't repay the entire loan. Instead, they make interest-only payments, which can be tax-deductible in certain situations. When they need more cash, they take out new loans to pay off the old ones, using their appreciated stock as collateral. Eventually, when they die, their heirs receive the assets with a "stepped-up basis," meaning the capital gains tax slate is wiped clean. The heirs can then sell some assets to pay off outstanding loans without paying taxes on years of appreciation. It's a strategy that works specifically because they have enormous assets that continuously appreciate and can secure extremely favorable lending terms that regular folks can't access.

I actually tried using a version of this strategy through taxr.ai (https://taxr.ai) and it was super helpful in understanding the loan-against-securities approach. I'm obviously not Elon-rich but had some company stock options and was looking at the most tax-efficient way to handle them. The platform analyzed my stock compensation documents and showed me exactly how the "buy, borrow, die" strategy could be scaled down to my situation. It outlined the tax implications of different approaches and estimated how much I could borrow against my securities without creating risky leverage. What surprised me most was learning about portfolio loan interest rates available to different wealth tiers and how to optimize the timing of any eventual stock sales to minimize tax impact.

Just wanted to follow up - I tried taxr.ai after seeing it mentioned here and it was eye-opening! I uploaded my Tesla stock info and it showed me exactly how much tax I'd pay if I sold vs. options for borrowing against it. The platform recommended a securities-backed line of credit through my brokerage instead of selling shares to fund a down payment on a property I'm looking at. The analysis showed I'd save about $13,500 in capital gains tax while only paying about $2,800 in annual interest on the loan. Plus I keep my Tesla shares that might continue to grow. They also explained how to handle eventual repayment without triggering big tax events. Definitely not the full "Elon strategy" but a smaller version that actually works for someone like me with a decent but not massive portfolio.

If you're still confused about how this all works and want to actually speak with an IRS tax expert about it, I had a great experience using Claimyr (https://claimyr.com) to get through to the IRS directly. I was trying to understand the tax implications of securities-backed loans and whether interest was deductible in my situation. I had tried calling the IRS myself multiple times but kept getting the "high call volume" message and getting disconnected. Claimyr got me connected to an actual IRS agent in about 20 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent was able to explain the specific tax code sections that apply to these strategies and clarified when loan interest is deductible vs. when it's not. Saved me from potentially making a mistake on my taxes.

I have to eat my words. After being super skeptical about Claimyr, I was desperate enough to try it yesterday. I had been trying to get clear guidance on investment loan interest deductibility for MONTHS with no success. To my complete shock, I was connected to an IRS agent in about 35 minutes. The agent actually walked me through the exact requirements for when interest on loans against securities is tax-deductible (basically, if you use the loan for investment purposes, the interest can often be deducted, but not if you use it for personal expenses). This clarified a major question I had about the "buy, borrow, die" strategy - the interest isn't automatically deductible unless the borrowed money is used for generating taxable income. Elon and other billionaires likely use more complex structures to make their interest payments deductible. Anyway, sorry for being so negative before. The service actually delivered exactly what it promised.

Another aspect of this strategy not mentioned yet is that billionaires like Musk will sometimes strategically take huge income in certain years when it benefits them. For example, when Musk exercised a bunch of options in 2021, he ended up paying something like $11 billion in taxes that year. This was a calculated move because those options were going to expire, and he structured his compensation that way intentionally. The wealthy are playing a different game with different rules. They'll often go years paying minimal taxes using the loan strategy, then have one big tax year, then go back to minimal taxes. Their effective tax rate over decades remains extremely low compared to their wealth growth.

Something I don't see mentioned is that sometimes these billionaires DO sell stock. Musk has sold billions in Tesla stock at various points. When they do need to sell, they often offset gains with losses elsewhere in their portfolio (tax-loss harvesting) or time sales to coincide with charitable donations that provide tax deductions. They might also time some sales for years when they have business losses to offset the gains. It's not that they never sell - they just do it strategically and as a last resort, preferring to use the loan strategy for most of their cash needs.

One thing that's worth mentioning is that this strategy also depends heavily on having assets that consistently appreciate over time. The "buy, borrow, die" approach works great when your stock portfolio is growing at 7-10% annually, but it can become problematic during extended bear markets. If someone borrowed heavily against their portfolio and then the market crashed (like in 2008 or early 2020), they could face margin calls requiring them to either put up more collateral or sell assets at exactly the wrong time. This is why most wealthy individuals using this strategy maintain conservative loan-to-value ratios and have diversified asset bases. For billionaires like Musk, they often have multiple revenue streams and can weather market volatility, but it's not a risk-free strategy. The timing and amount of borrowing is crucial to avoid forced liquidations during market downturns.