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Started By
Message
re: “The rich avoid tax by taking loans against their stocks!”
Posted on 6/14/26 at 7:48 am to Penrod
Posted on 6/14/26 at 7:48 am to Penrod
quote:
I wasn’t talking about a wealth tax.
I misread my bad.
but are you suggesting a tax on proceeds or capital gains?
I'm fine with tax on capital gains but not on proceeds. Taxed proceeds discourages investing because you are basically being charged a tax for putting money in the market. Sure you are only taxed when it comes out, but you could lose thousands on a stock and still have to pay thousands on a capital loss.
This post was edited on 6/14/26 at 7:51 am
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Posted on 6/14/26 at 7:49 am to Penrod
quote:
That was true last week, but the vast majority of Musk’s worth is now in public stocks.
you have proof of this?
Posted on 6/14/26 at 7:53 am to catholictigerfan
quote:
you have proof of this?
I don’t know what you’d accept as proof, but his Spac X shares are worth about $700 billion and his Tesla shares are worth about $200 billion.
Here from AI…
quote:
Almost 100% of Elon Musk’s net worth (over $1.1 trillion) is held in publicly traded stocks and options. The vast majority is concentrated across his publicly traded companies.His publicly traded portfolio is structured as follows:SpaceX (NASDAQ: SPCX): Makes up the largest portion of his wealth, with his massive ownership stake and exercisable options valued at over $850 billion following the company's IPO.Tesla (NASDAQ: TSLA): Accounts for roughly $270 billion, derived from his ~11% common stock ownership and his exercisable 2018 compensation package options.Private Ventures: Minor stakes in Neuralink, The Boring Company, and X make up a negligible fraction of his net worth at this scale.
Posted on 6/14/26 at 8:07 am to Dawgfanman
quote:
This isn’t true of my Heloc.
It is if you want to deduct the interest.
Posted on 6/14/26 at 8:09 am to McLemore
quote:
It is if you want to deduct the interest.
Ahhh. Missed this was why you said what you did.
Posted on 6/14/26 at 8:14 am to Penrod
Ok fine, Elon has billions maybe trillions tied up in the market. Still doesn’t answer my question about taxing proceeds vs capital gains.
Posted on 6/14/26 at 8:20 am to Dawgfanman
quote:
Ahhh. Missed this was why you said what you did
I expect people to read my mind. (-:
Posted on 6/14/26 at 8:48 am to SquatchDawg
quote:
You don’t pay income taxes on any loan or line of credit. But don’t you have to pay it back plus interest at some point?
Not really. The stocks are the collateral. They are 'locked down', you can't pull them out of that account, there may be some limits on trading within the account (they won't loan you as much if you have crazy volatile stocks in the account). Example:
You have an account with $10M of stocks. They let you borrow $2M against it, and you pay the interest every month (usually a floating rate, some index plus x.x%). You can just pay the interest. You don't need to pay any 'principal', because you own the principal.
You only need to pay the $2M to end the interest payment you are making, and free up those committed stocks if you wanted to sell them outright.
Posted on 6/14/26 at 9:01 am to lsuconnman
quote:
Remove the step-up in basis tax and this entire topic disappears.
Remove the step-up in basis tax and you have created a ton more of other problems.
So a guy builds a family business. That business can't run without the $50M factory that was built over 40 years, many of those years being hard times. So now the owner dies, and owes an estate tax on that, or all the unrealized gains are now taxed, even though they aren't taking the money out of the business?
You'll destroy those businesses, you'll destroy the incentive to build a family business.
They are getting taxed every which way, property taxes on the factory, their share of employee taxes, etc. If you own stocks, the dividends are taxed. If you manage to hang on to some, I say they are yours, and you have the right to pass them on to whoever you want, the govt should not get involved.
And don't tell me you'll make a carve out for business investments - Congress will put in 'loopholes' for their rich friends, and it will just complicate things for every one else.
Posted on 6/14/26 at 9:15 am to Victor R Franko
Penrod:
You are talking "wash sales" rules. But they don't apply to buying back a 'similar' stock, only if you buy back the same stock/fund. There's some vague wording there that has never been tested, and that is "substantially identical". So it's not clear if I sell one S&P500 fund, and purchase another, if it is a wash or not. AFAIK, no one has had a sale be deemed a 'wash sale' unless it was actually identical.
And it is a 61 day window (30 days before and after), to be exact.
quote:
my managers will harvest losses to offset some of the gains and then reinvest in similar stocks so I don’t lose out on the opportunity of the low share prices
quote:
This isn't legal unless they're waiting the required 30 day waiting period necessary to allow the loss offset. I'm sure that's what you meant.
You are talking "wash sales" rules. But they don't apply to buying back a 'similar' stock, only if you buy back the same stock/fund. There's some vague wording there that has never been tested, and that is "substantially identical". So it's not clear if I sell one S&P500 fund, and purchase another, if it is a wash or not. AFAIK, no one has had a sale be deemed a 'wash sale' unless it was actually identical.
And it is a 61 day window (30 days before and after), to be exact.
Posted on 6/14/26 at 9:41 am to catholictigerfan
quote:
Still doesn’t answer my question about taxing proceeds vs capital gains.
I already answered it, but I’ll do so again.
We are talking about taxing loans that are used to supply living expenses. Anyone who deploys this is taking out loans that are a small fraction of their worth, otherwise it either wouldn’t work mathematically or it would be too risky (a market reversal could cause the seizure of the entire portfolio). So we are not talking about taxing all of their unrealized capital gains, but merely taxing those loans as ordinary income to discourage their use.
This would cause the wealthy who used these methods to instead sell a few shares every year to pay for their living expenses and thus pay capital gains on those shares that have appreciated. This is a tiny portion of their net worth.
American billionaires hold about $6 trillion in total wealth. There are about a thousand American billionaires, and a google search estimates their average annual living expenses at $60 million, so $60 billion combined annual living expenses.
Assume 100% of that is covered by loans. This would force stock sales of $60 billion each year and capital gains taxes of about $14 billion per year (assuming the bases were all zero)…so practically nothing. And this is all based on extremely generous assumptions. My guess is it would be about $5 billion.
This post was edited on 6/14/26 at 9:42 am
Posted on 6/14/26 at 9:58 am to MidWestGuy
quote:At least the laws in this arena changed in 2018 regarding interest deduction.
You don’t pay income taxes on any loan or line of credit. But don’t you have to pay it back plus interest at some point?
---
Not really.
Prior to 2018, one could take out a loan against portfolio holdings, and spend that loan money on virtually anything (de facto income) while deducting interest as a portfolio management cost.
In the case of homes exceeding mortgage interest deduction allowances, one could draw a low-cost loan against a portfolio, use that money to pay for a second home, and deduct the mortgage interest in full, as a "portfolio cost." Meaning that while John Q public was subject to a $750,000 limit on mortgage interest rate deductions, the affluent were subject to no such limitation.
As of 2018, the law was modified. So that while the interest deduction rule still holds for money spent on investments (i.e. margin loans), it can no longer be applied to personal expenses, such as a lived-in residence or simple income. You can still use such funds to apply to rental properties, as long as the properties are not used for personal purposes.
Meanwhile, über affluent folks come out way ahead using loans as income, even without deducting interest. For example, Bezos can pay 5 to 6% interest on a loan without the loan itself being taxable, use the loan money as a living expense, and avoid massive taxation that would be entailed if he simply cashed capital gains. It is a nuance which came to the forefront when Elon Musk inexplicably (?patriotically?) elected to cash Tesla shares, fully exposed to tax, in order to buy Twitter. Obtaining a simple loan against his shares would have cost vastly less while preserving his holdings.
This post was edited on 6/14/26 at 10:00 am
Posted on 6/14/26 at 10:25 am to NC_Tigah
quote:
when Elon Musk inexplicably (?patriotically?) elected to cash Tesla shares, fully exposed to tax, in order to buy Twitter. Obtaining a simple loan against his shares would have cost vastly less while preserving his holdings.
It's possible that no financial institution wanted to loan out a large enough amount against the shares that Elon had. Tesla stock was extremely volatile, and not diversified. Not a great holding to use as collateral. I have an LOC that I've used occasionally for some short term cash flow needs, to avoid selling appreciated shares and incurring cap gains tax. My collateral was broad index funds, essentially a Beta of one vs 'the market'.
Let's see, AI says:
quote:
At the exact time Elon Musk finalized his purchase of Twitter on October 27, 2022, his net worth was estimated to be between $204 billion and $212 billion.
and...
How the $44 Billion Deal Was Funded - Musk did not pay the entire amount out of pocket; instead, he assembled a leveraged buyout package consisting of personal wealth, loans, and outside investments:$27.7 billion in personal equity: Funded largely by selling billions of dollars worth of his personal Tesla stock
more to the point:
quote:For reference, I can borrow ~ 55% of my stocks current value. Banks limited Elon to 20%, and as shown above, that would have been risky for the bank.
Why didn't Musk borrow against his Tesla shares?
Elon Musk initially planned to take out a $12.5 billion margin loan against his Tesla shares to finance the Twitter buyout. ... The primary reasons Musk chose not to borrow against his Tesla stock include:
1. Risk of a "Margin Call" A margin loan requires the borrower to maintain a specific collateral value. Under the original terms, banks required Musk to back the loan with Tesla stock worth five times the loan amount. Between April and May 2022, Tesla's stock price plummeted by roughly 30% to 40%. Had Tesla's stock dropped further, banks would have triggered a margin call.This would have forced Musk to either instantly inject billions in cash or watch the banks forcibly sell off his Tesla shares at rock-bottom prices to cover the gap.
2. Tesla Corporate Borrowing RulesTesla’s board maintains a strict corporate policy to protect the company from executive leverage. At the time, Tesla rules limited major shareholders from borrowing more than 25% of the total value of any pledged shares. Because Musk had already pledged over 90 million shares to secure older, personal loans before the Twitter bid, he was running out of unpledged stock to legally use as collateral under Tesla’s guidelines.
This post was edited on 6/14/26 at 10:32 am
Posted on 6/14/26 at 10:38 am to MidWestGuy
quote:I guess anything is possible. It's possible a little green man entering the room carrying a flaming pizza made the determination as well.
It's possible that no financial institution wanted to loan out a large enough amount against the shares that Elon had.
The fact is Musk ended up paying about 53% in tax on the shares and options he cashed out. So if the premise was that Tesla shares might well drop over 50% further than where they stood at the time of the Twitter purchase, AI's take would make sense.
Posted on 6/14/26 at 10:41 am to horndog
How does this work? Asking for a friend
Posted on 6/14/26 at 11:01 am to oldtrucker
quote:Draw a loan against your assets. Spend the money as you like.
How does this work? Asking for a friend
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