🔑 How the “Buy, Borrow, Die” Strategy Works

The “buy, borrow, die” strategy is a powerful tax-planning technique used by wealthy individuals—like Elon Musk and Jeff Bezos—to minimize or even eliminate income tax on the appreciation of assets, especially highly appreciated stock. It leverages core principles of U.S. capital gains taxation and estate planning.

1. Buy

  • Acquire an asset (e.g., company stock, real estate) and hold it long-term.
  • No tax is due while the asset simply appreciates in value—unrealized gains are not taxable.

2. Borrow

  • Instead of selling the appreciated asset (which would trigger capital gains tax), borrow against it using it as collateral.
  • Loan proceeds are not taxable income under current tax law.
  • Use the borrowed funds to finance lifestyle expenses, investments, or other needs—without ever selling the asset.

💡 Example: If you own $100 million of stock that cost $1 million, you can borrow $50 million against it tax-free. You live off the loan—not the sale proceeds.

3. Die

  • Upon death, heirs receive the asset with a stepped-up basis equal to its fair market value at the date of death (IRC §1014).
  • The $99 million of built-in gain disappears for income tax purposes—never taxed.
  • Heirs can sell the asset immediately with little or no capital gains tax.

📌 Note: Estate tax may still apply if the estate exceeds the exemption ($13.99 million per person in 2025), but many ultra-wealthy use trusts and other tools to mitigate this too.

⚖️ Why It’s Legal (and Controversial)

  • Not a loophole—it’s how the tax code is designed:
    • Capital gains are only taxed upon sale or exchange.
    • Loans are not income.
    • Step-up in basis at death is a longstanding provision.
  • Critics argue it allows the ultra-wealthy to avoid taxes that wage earners cannot escape, contributing to inequality.
  • Proponents say it encourages long-term investment and entrepreneurship.

🧾 Real-World Example from the Handout

Elon Musk:

  • Spent years building Tesla (no income tax on his labor or stock appreciation).
  • Borrowed billions against his Tesla shares to fund living expenses and other ventures.
  • Only recently began selling shares—and pays capital gains rates (not ordinary income rates).
  • Moved to Texas (no state income tax) to further reduce tax burden.

🛑 Limitations & Risks

  • Interest costs on loans can accumulate.
  • Margin calls if asset value drops sharply.
  • Estate tax exposure if net worth exceeds exemption.
  • Future legislation could limit step-up in basis or treat loans as constructive sales (proposed in some reform plans).

💡 Takeaway for Advisors & Taxpayers

While most people won’t have $100 billion in stock, the principles apply broadly:

  • Hold appreciated assets long-term.
  • Consider borrowing vs. selling if you need liquidity.
  • Use estate planning to maximize basis step-up for heirs.

This strategy highlights why asset location, holding period, and intergenerational planning are central to effective tax management.