- Nick Burgess
Buy, Borrow, Die: How the Wealthy Avoid Taxes
The following article is for entertainment and educational purposes only, and is not investment or financial advice. For financial advice, please contact a licensed financial professional. Not a paid endorsement.
Buy, Borrow, Die
Are you a wealthy individual tired of the government taking a big chunk out of your hard-earned assets? Look no further than the "Buy, Borrow, Die" method! It's like a game of Monopoly, but with real money and the IRS as your opponent. This method is a strategy used by the wealthy to avoid paying taxes on their assets, and it's a game that anyone can play, as long as you have the assets to begin with.
Step 1: Buy Assets for Appreciation
The first step in this strategy is to buy assets that will appreciate in value over time. But what does "asset" mean, I hear you ask. Well if you're on this site, literally Ctrl + F "asset" and you'll find pieces on stocks, bonds, gold, index funds and real estate. Those are the key assets in question, but this is actually the hardest part of the whole process. REason being, you're going to want to find assets that will actually grow over time so you can take advantage of the appreciation in value of those assets. If you're incredibly smart but also kind of lazy, then it might be index funds for you. If you prefer a more active approach, take a look at individual stocks. If you really, really hate taxes, then you might be a real estate kind of investor.
Step 2: Borrowing Your Assets and the "Like-Kind" Exchange
The second step is to borrow against the assets. This can be done in two ways:
1. Borrowing against the assets themselves, or
2. Upgrading your assets without tax implications
Borrowing Against Your Assets
Borrowing against your assets allows wealthy individuals to access cash without selling their appreciated assets and incurring capital gains taxes. It can also be a way for the wealthy to just...stop working. Reason being, if the wealthy borrow against their assets, then there's no income tax to deal with, as long as they can pay back the loan. This is the loophole that allows wealthy people to turn their assets into cash without losing their assets, in a process called "having your cake and eating it too."
Upgrading Your Assets Tax-Free
There's a secret process made available to the wealthy that allows them to avoid taxes when they finally do sell their assets. This is often done through a process called a "like-kind exchange," which allows individuals to sell an appreciated asset and then use the proceeds to purchase a similar asset without incurring a tax liability.
This technique is commonly used by real estate investors to defer taxes on the sale of a property in a process known as "The 1031 Exchange," referring to the section of the tax code that lets you execute this strategy. Additionally, wealthy individuals can also take out loans against their assets, such as a second mortgage on a property. By borrowing against their assets, wealthy individuals can access cash without having to pay taxes, and without having to sell their appreciated assets.
Step 3: Die(?)
The final step is to pass on the assets to heirs upon death, tax-free. Under current federal tax law, the value of an individual's assets is reset upon their death, allowing heirs to inherit appreciated assets without incurring capital gains taxes. This is known as a "step-up in basis." This step-up in basis can also be used in conjunction with a trust, which can help protect assets from estate taxes and creditors. By passing on the assets to their heirs tax-free, wealthy individuals can ensure that their wealth will continue to grow and be passed down through generations, without having to pay any taxes.
The other best way to legally avoid taxes on your investments? A Roth IRA! If you're interested in opening a Roth IRA to begin your generational wealth journey, we recommend M1 Finance, the easiest way to open and fund your way to retirement. With dynamic portfolio, expert strategies pre-built into the platform and no administrative fees, you won't find a better online brokerage. If you open a new Roth IRA with M1, please consider using our link to help support the site, and thanks to M1 for their partnership!
Downsides of Buy, Borrow, Die
While the "Buy, Borrow, Die" method can be an effective strategy for wealthy individuals to avoid taxes on their assets, it should be noted that this strategy is not without risk. Borrowing against appreciated assets can increase the risk of losing those assets if the borrower is unable to repay the loan. Additionally, this method may be challenged by tax authorities, so it's important to consult with a tax professional before implementing this strategy.
Alternatives to Buy, Borrow Die
In addition, there are other ways wealthy people use to avoid taxes, such as setting up offshore companies, trusts and foundations in tax havens and keeping their money on offshore bank accounts. Some wealthy people also use charitable donations as a way to reduce their tax bill. And if you're in the crypto arena, the options you have to avoid taxes are...numerous, to say the least.
Related: How The Wealthy Avoid Crypto Taxes
In conclusion, the "Buy, Borrow, Die" method is a strategy that wealthy individuals can use to avoid taxes on their assets, but it comes with risks and may be viewed as morally questionable. It's important to consult with a tax professional before implementing this strategy and to be aware of other ways wealthy people use to avoid taxes. It's also important to stay up to date on the tax laws and regulations, as the rules of the game may be changing.
It's worth noting that while many people may view tax avoidance as unethical, it's important to remember that the taxes paid by wealthy individuals can be used to fund important public programs and services. However, the fact that the wealthy are able to use legal loopholes and strategies to avoid paying their fair share does contribute to income inequality and can be a source of frustration for many people.
Ultimately, whether or not you choose to use the "Buy, Borrow, Die" method or any other tax avoidance strategy is a personal decision. It's important to weigh the potential benefits against the potential risks and to consider the moral implications. But if you do decide to play the game, just make sure you have a good tax professional on your team to help guide you through the process.