Buy, borrow, die: The three-word strategy that lets the wealthy spend millions and never pay capital gains tax

If you own appreciated stock, real estate, or a business, you're already sitting on the same tax machine billionaires use. It's called Buy, Borrow, Die, and it lets someone spend millions from a portfolio while paying $0 in capital gains tax. The strategy is baked directly into the Internal Revenue Code, and the plumbing is available at most major brokerages.

The Reveal: Three Moves, Zero Tax

Here's the trick in one paragraph. You buy assets that appreciate (stocks, index funds, real estate). Instead of selling and triggering capital gains, you borrow against those assets using a securities-backed line of credit or margin loan. Loan proceeds are not income, so no tax is owed on the cash you spend. When you die, your heirs inherit the assets at a stepped-up cost basis equal to fair market value on your date of death. Every dollar of embedded gain that accumulated during your lifetime vanishes for tax purposes. The loan gets repaid from the estate, and the family keeps the rest.

The Proof: The Statute That Makes It Work

The magic ingredient is 26 U.S. Code §1014, the "basis of property acquired from a decedent" rule. It resets the cost basis of inherited capital assets to their value at death. The borrowing side works because loan proceeds are not gross income under 26 U.S. Code §61. And the long-term capital gains you're avoiding? Those still top out at 20% federally, plus the 3.8% net investment income tax if you ever sold.

Who Benefits Most

This works for anyone holding appreciated taxable assets: a brokerage account, a rental property, founder stock, crypto held in a personal wallet. It does not work for retirement accounts. IRAs, 401(k)s, and 403(b)s do not receive a step-up in basis. Heirs pay ordinary income tax on distributions. It also does not help if your net worth pushes past the federal estate tax exemption, which under the One Big Beautiful Bill Act sits at $15 million per individual (roughly $30 million for married couples) starting in 2026. Above that line, the estate tax rate is 40%, which can swamp the income tax savings.

How to Actually Use It

1. Hold appreciated assets in a taxable brokerage or trust account. Retirement accounts do not qualify.
2. Open a securities-backed line of credit (SBLOC) or pledged asset line at your broker. Rates key off short-term benchmarks. With the federal funds target upper bound at 3.75% as of July 21, 2026, SBLOC rates typically sit a few points above that. The 10-year Treasury at 4.55% anchors longer-dated alternatives.
3. Borrow conservatively. Keep loan-to-value well below the brokerage's maintenance requirement (often 50% for stocks, lower for concentrated positions).
4. Spend the proceeds. Loan cash is not a taxable event.
5. Hold the assets until death. Under §1014, your heirs receive a fresh basis at fair market value and can immediately sell with little or no capital gains tax.

The Catch

Three traps kill this strategy. First, margin calls. If your collateral craters (2000, 2008, 2020, or a single-stock blowup), the broker can force liquidation at the worst possible moment, triggering the capital gains you were trying to avoid. Second, interest rates matter. Every dollar of interest reduces the arbitrage. In a 3.75% Fed environment, down from 4.5% a year ago, the math works better than it did in 2023, but the loan still compounds. Third, step-up is on the political chopping block. Multiple proposals over the last decade have tried to repeal or cap §1014. It's still law, but plan for the possibility it changes.

One more note: assets held in an IRA, 401(k), or annuity are excluded from step-up entirely. Community property states (California, Texas, Washington, and others) offer a double step-up on jointly held assets when one spouse dies, which supercharges the strategy for married couples in those states.

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