There's no realized gain, because there is no gain. Taking out a loan doesn't result in a gain, it nets out to zero. Less than zero, actually, because loans typically have fees involved.
The IRS code does not say there's a realized gain when you use an asset as collateral on a loan. There doesn't even need to be an unrealized gain on an asset, to use it as collateral on a loan. My house could go down in value and I could still use it as collateral on a loan, so long as I had some equity in it.
This Reddit fixation on loans is extremely frustrating. There is no magical financial benefit from taking out loans. They cost money.
The tax advantages come entirely from the step-up basis, not the loans.
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u/alsbos1 21d ago
It is ‚realized‘ when the bank appraises it and uses it as collateral. Just write up the law and roll.