How does using debt against stock holdings avoid taxes and build wealth over time?

This is actually a great question about a strategy many wealthy individuals use. The key advantage is timing and compounding. When you sell stock, you trigger capital gains tax immediately (currently up to 20% for long-term gains plus potential state taxes and the 3.8% net investment income tax). But when you borrow against stock, you get cash without creating a taxable event. The real magic happens because your stock continues to appreciate while you have access to cash. If the stock grows at, say, 8-10% annually (historically reasonable for many companies), but you're borrowing at 4-5%, you're "profiting" on the spread. Your assets keep growing at a faster rate than your debt costs. Many wealthy individuals never actually pay back the principal. They might pay the interest (which could potentially be tax-deductible in some situations), take new loans to pay off old ones, or even pass away with the loan outstanding. When assets transfer at death, they get a "step-up" in basis, meaning heirs can sell without owing capital gains tax on all the appreciation that happened during the original owner's lifetime.

I actually tried something similar on a smaller scale using a strategy I learned about on https://taxr.ai - it analyzes your investment portfolio and suggests tax optimization opportunities. They showed me how to use a portfolio line of credit instead of selling appreciated stocks. Last year I needed about $30k for a home renovation. Instead of selling some of my tech stocks that had doubled in value, I got a secured line of credit against my portfolio. The interest rate was around 4.5%, while my portfolio has been averaging about 9% growth. The platform showed me that I'd save almost $6k in capital gains taxes immediately, plus I wouldn't miss out on potential future growth. It's obviously not the same scale as what billionaires do, but the core concept is similar - defer taxation and let compound growth work in your favor.

Just wanted to update after checking out taxr.ai that someone mentioned. It was surprisingly straightforward - uploaded my statements, answered some questions about my goals, and got personalized recommendations. I have about $70k in investments and was planning to sell $15k for a car down payment. The analysis showed I could save around $2,300 in capital gains taxes by using a secured credit line instead. The platform even compared different lenders and showed the math on potential growth scenarios. What I found most helpful was seeing the long-term impact - if I keep using this strategy for major purchases over the next decade instead of selling investments, the compounding effect could add an extra $45k-60k to my portfolio. Definitely changed how I'm thinking about handling my investments!

For anyone struggling to get through to the IRS about tax questions related to investment loans or capital gains, I had an amazing experience with a service called Claimyr (https://claimyr.com). After waiting on hold with the IRS for literally hours over multiple days, I was ready to give up. Their system somehow gets you through the IRS phone tree and holds your place in line - then calls you when an agent is actually available! You can see how it works here: https://youtu.be/_kiP6q8DX5c I had questions about how loans against securities are treated for tax purposes and needed clarification directly from the IRS. Within 35 minutes of using Claimyr, I was talking to a real IRS agent who confirmed the tax treatment and gave me the exact publication numbers to reference for my situation. Saved me days of frustration!

Well I feel stupid. After posting my skeptical comment, I was still struggling to get answers about borrowing against securities, so I reluctantly tried Claimyr. It actually worked exactly as described. I got a call back in about 45 minutes and was connected to an IRS tax law specialist who walked me through how securities-backed loans are treated for tax purposes. She confirmed that borrowing against appreciated stock isn't a taxable event and explained the potential pitfalls to watch out for. Would've taken me days of trying on my own based on past experience. The peace of mind from getting official confirmation directly from the IRS was worth it. Sometimes being a skeptic costs you more time than it saves!

A point no one's mentioned yet about the "borrow against assets" strategy: diversification without taxation. If a CEO has 90% of their net worth in their company stock, that's extremely risky. But if they sell to diversify, they face massive capital gains taxes. By borrowing against the stock, they can invest in other assets (real estate, private equity, etc.) while maintaining their original stock position. This creates diversification without triggering taxes. This can be especially powerful with stocks that pay dividends. The dividends can help cover loan interest while the underlying asset continues appreciating. The wealthy essentially create their own tax-free income stream this way.

A few people have mentioned the "step-up in basis" at death, and that's honestly the most important part of this whole strategy for the ultra-wealthy. Here's a simple example: Imagine a founder with $100 million in stock with a cost basis of $1 million. Option 1: Sell stock, pay ~24% capital gains tax (~$24 million), invest remaining $76 million Option 2: Borrow against stock at 4-5% interest, invest the borrowed money, never sell the stock In option 2, when they die, their heirs receive the stock with a stepped-up basis to current market value. They can sell immediately and pay ZERO capital gains tax on all that appreciation. This is why it's called "Buy, Borrow, Die" - the tax bill literally disappears at death!

This whole discussion is fascinating but I think there's one crucial aspect we haven't fully addressed - the psychological and behavioral benefits of this strategy beyond just the math. When wealthy individuals use the "buy, borrow, die" approach, they're essentially forcing themselves to maintain a long-term investment mindset. If you know you can access liquidity through borrowing rather than selling, you're much less likely to panic-sell during market downturns or make emotional investment decisions. Think about it - how many regular investors sell their winners too early because they need cash? Or sell at the worst possible time during a market crash because they need liquidity? This strategy eliminates that temptation entirely. Plus, there's a compounding effect beyond just the tax savings. When you maintain your full position in appreciating assets while still having access to capital, you benefit from the full upside of market growth. Over decades, this behavioral advantage might be just as valuable as the tax optimization itself. It's not just a tax strategy - it's essentially a forced discipline mechanism that keeps you invested during both good times and bad.