Buy, Borrow, Die: How the Very Rich Avoid Ever Selling
The wealthiest investors often live on borrowed money instead of selling stock, then pass the shares to heirs with the gains wiped clean at death. Here's how buy, borrow, die works, what it costs, and what a regular investor can take from it.
Some of the richest people in the country report surprisingly small taxable incomes. In 2021, ProPublica’s reporting on leaked IRS data showed how this works, and the strategy behind it has a blunt nickname: buy, borrow, die. It isn’t a loophole in the illegal sense. It’s three ordinary parts of the tax code used in sequence.
Step 1: Buy
Buy assets that tend to grow in value: stock, real estate, a stake in a business. In the U.S., an increase in value isn’t taxed while you hold the asset. You only owe capital gains tax when you sell and “realize” the gain. A founder whose shares grow from $1 million to $100 million owes nothing on that $99 million as long as they never sell.
Step 2: Borrow
The catch is that you can’t spend stock you don’t sell. So instead of selling, you borrow against it. Banks offer securities-backed lines of credit that use your portfolio as collateral, often at interest rates well below a credit card’s. Borrowed money isn’t income, so it isn’t taxed. You can spend it on houses, living costs or new investments, and as long as the portfolio grows faster than the loan’s interest, you get richer while borrowing.
Step 3: Die
When you die, your heirs inherit the assets with a step-up in basis. The cost basis (the number used to calculate a gain) resets to the market value on the date of death. The decades of gains that were never taxed simply disappear for income tax purposes. The estate can then sell some of the shares to repay the loans with little or no capital gains tax.
A worked example
Say an investor owns stock worth $10 million that they bought for $1 million.
- If they sell: the $9 million gain is taxed at up to 23.8% federally (20% plus the 3.8% net investment income tax). That’s about $2.1 million in tax, before any state tax.
- If they borrow instead: they take out $500,000 a year to live on and pay interest on the loan. No sale, no capital gains tax.
- At death: the heirs receive stock with a new basis equal to its value that day. If it’s worth $15 million, the old $1 million basis is gone. The estate sells enough to repay the loans, and the $14 million of growth is never hit by income tax.
The estate tax can still apply. In 2026 the federal exemption is $15 million per person, and value above that is taxed at up to 40%. The very wealthy use trusts and other planning to shrink that too, but that’s a separate topic.
The risks
Buy, borrow, die works best for people who are already very rich, and it isn’t free:
- Interest adds up. You’re paying interest every year, and rates move. When rates rose in 2022–2023, this strategy got noticeably more expensive.
- Margin calls. If the portfolio falls sharply, the lender can demand more collateral or sell your shares, often at the worst possible time. That forced sale triggers the very tax you were trying to avoid.
- Concentration. Many people using this hold most of their wealth in one company’s stock. A big drop in that one stock can unwind the whole plan.
The policy debate
Critics argue the step-up in basis lets the largest fortunes in the country avoid income tax entirely. Proposals have included taxing unrealized gains at death, as Canada effectively does, or taxing a minimum share of unrealized gains for billionaires. None of these has passed Congress, so the step-up remains current law.
What a regular investor can take from it
Most people shouldn’t borrow against their portfolio to fund their lifestyle. But two parts of the strategy apply to almost anyone:
- Not selling is a tax decision. Every sale of an appreciated asset in a taxable account creates a tax bill. Holding long-term winners, especially late in life, can save your heirs a lot.
- Know what gets a step-up. Stocks in a regular brokerage account and real estate get a step-up. Traditional IRAs and 401(k)s don’t: heirs pay ordinary income tax on withdrawals.
The short version
Buy assets that grow, borrow against them instead of selling, and let the step-up in basis erase the gains at death. It’s legal, and it’s one big reason the wealthiest Americans can pay little income tax relative to their fortunes. It also depends on cheap borrowing, rising asset prices and enough wealth to ride out a crash, which is why it mostly works for people who are already rich.
Not investment or tax advice — just an explanation of how the strategy works. Talk to a tax professional about your own situation.