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> de facto realize their gains in the form of collateral for loans that allow them to live without ever realizing their gains from the perspective of the tax co
by like_any_other 18d ago
> de facto realize their gains in the form of collateral for loans that allow them to live without ever realizing their gains from the perspective of the tax code.
Can you explain how this works? I have my wealth in stocks, I use those stocks as collateral for a loan. To pay back this loan, I have to either get money from somewhere, or hand over the collateral to the bank. Let's say "get money from somewhere" is taxed (to avoid circular reasoning), so that leaves trade loan collateral for loan cash, which is on net no different than selling the stocks.
This is not taxed? And wouldn't it be infinitely easier to close that loophole, than taxing the estimated profit for the next N years, which is what unrealized gains tax amounts to?
- deleted 18d ago[deleted]
- spelledwrong 18d ago> I have to either get money from somewhere Take out another (slightly larger) loan against the stock. As long as the stock grows faster than the interest rate, you should be able to chain loans together forever. You need to only borrow a portion of the value of the collateral to provide a buffer from volatility, but that should also mean the loan is very safe and thus at a low interest rate. To close the loophole you would need to be able to tax borrowed money which creates its own set of dangers.
- atmavatar 17d agoAnother way to close the loophole would be to amend the tax code to realize the gains for any stock used as collateral, since the person obtaining the loan is already de facto realizing the gains for the sake of the loan.