The Buy, Borrow, Die Strategy

We are nearing the end of the year, which means you may have a bittersweet feeling when you look at your investment portfolio. Sweet, because it has been yet another strong year in the stock market with the S&P 500 up roughly 16% year-to-date. Bitter, for the same reason, Uncle Sam shares in your success. Could the index possibly have back-to-back-to-back 20%+ year returns, a three-peat? The markets have been hovering around all-time highs, and continually breaking records over the past few years. Many investors are wondering if there is a bubble getting ready to burst, or are at least considering rebalancing a portfolio that may have become overweight in equities.

Herein lies the difficulty with year-end planning. For nonqualified or non-retirement, investment accounts in which taxes are not deferred, portfolio adjustments are likely to trigger capital gains taxes. These can come in two forms: long-term, investments held for over 12 months, and short-term, investments held for less than 12 months. In 2025, long-term capital gains taxes are 0% for married filing jointly with taxable income below $94,050 ($47,025 for single filers), 15% for those between $94,050 and $583,750 ($518,900 single), and 20% for those above the 15% threshold. Short-term gains are taxed more heavily by being added to the investor’s ordinary income. These taxes may pose a problem, but as I often like to say, it’s a good problem, it means your money is growing.

What is the investor to do when he or she wants to effectively have their cake and eat it too? There are essentially two choices—sell or hold. The most common way to mitigate capital gains taxes when selling is through tax-loss harvesting, the offsetting of capital losses against capital gains. To avoid the wash-sale rule, an investor can sell an investment at a loss and then wait at least 30 days before repurchasing or buying a substantially identical investment. However, as a result of a wide market rally, many investors may be looking at their portfolio and having a hard time finding positions in which they can actually sell at a loss. Such sellers may be forced to bite the bullet and pay the capital gains tax.

The alternative to selling, is continuing to hold. While it is generally not advisable to let the “tax-tail wag the investment dog”, many investors may be comfortable letting their investments ride. This introduces the strategy adopted by many investors, especially in high-net-worth and high-income situations, called “Buy, Borrow, Die”. Per the name, this strategy has three steps.

• Buy assets for the long-term. These can include stocks, real estate, bonds, among other investments. By holding onto these investments, unrealized gains will not become realized, allowing the owner to defer any capital gains taxes.
• Borrow against these assets. Rather than selling the investments, the owner takes out loans instead of withdrawals when they need cash (such as a securities-backed line of credit, home equity loan on real estate, or cash value line of credit on life insurance, etc.). The appreciated asset serves as the collateral. Proceeds from a loan are not considered income or capital gains, but rather debt, and as such are not taxable.1
• Die while still owning these original assets. Under current U.S. tax law, inherited assets receive a “step-up in basis”, meaning the cost basis of the investment for tax purposes is stepped-up to the fair market value at the time of the owner’s death. For instance, if someone bought a stock in 1990 for $100 which is today worth $2,000 and then sold it, they would have a $1,900 gain subject to tax. But, if they were to die today, their beneficiaries would inherit the stock and their basis would be adjusted to $2,000, allowing them to now sell it with no capital gains tax (assuming the asset has not appreciated in value since the original owner’s death).

This “Buy, Borrow, Die” strategy is typically for wealthy individuals who want liquidity but are reluctant to pay capital gains taxes. It requires significant assets, enough to be used as collateral and allow access to favorable loan products. It is often not advisable strictly against risky assets as a market crash could trigger a margin call, nor may it be suitable in a high-interest variable rate loan as the financing costs may exceed asset appreciation.

This approach is one of several that may be considered within an overall financial plan. Investors should be aware of the tax consequences of their various investments and account types (i.e. taxable, tax-deferred, and tax-free) and their liquidity values. Understanding long-term consequences and estate planning consequences can allow investors with long-term horizons to work backwards to current-day decisions.

Written by Bryan M. Kuderna. This article is intended for the general public to potentially assist in planning for the future. This should not be considered investment advice. Readers should consult their own financial professionals, legal, and tax advisors to discuss their specific situation.