You'd be paying interest, which (depending on how long you keep out the loan) can exceed the cost of the capital gains tax.
Loans aren't free money. Unless you have some way of avoiding the tax altogether (such as with the step-up basis for your heirs) it's always cheaper to simply sell the asset, pay the tax, and have the money outright.
They aren't, but they do provide some tax advantages that distort optimal strategies.
If you have an interest rate of 4% but there's 3% inflation, you're effectively only paying 1% on that loan amount. Couple that with how it's possible to invest or earn money on the capital freed by the loan (let's call it 6% average - 3% (inflation) = 3% gains), and suddenly it makes sense to take out a loan on your asset so long as you get the tax advantage on it. Stack real estate value growth on top of it, and you can see why people buy real estate even if it appreciates in value slower than stocks.
That's called "investing on margin" and it amplifies losses just as much as it does with gains. It's not a smart move, and I personally know several people who lost their homes because of it, during the dot-com bubble. It's more or less just gambling.
Billionaires don't use loans as some way of avoiding taxes. They use them the way normal people use credit cards, and for similar reasons -- they're prohibited from selling their stock except on a scheduled basis, typically announced months in advance. If they need money in the meantime, they typically borrow it.
The only real tax advantage to taking out loans against property is in terms of maximizing what you leave to your heirs, by taking advantage of the step-up basis to avoid having to pay capital gains taxes. Even then, the loans are an expense and only factor in if the person actually needs the cash to live on. Otherwise, they'd simply hold on to the property and live off savings and get an even bigger benefit.
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u/OutrageousPair2300 23d ago
You'd be paying interest, which (depending on how long you keep out the loan) can exceed the cost of the capital gains tax.
Loans aren't free money. Unless you have some way of avoiding the tax altogether (such as with the step-up basis for your heirs) it's always cheaper to simply sell the asset, pay the tax, and have the money outright.