How rich people use securities, assets to cash out without taxes

How rich people are using cheap loans to cash out without taking a big tax hit

Finance, Wall Street

11/29/2021 9:27:00 PM

How rich people are using cheap loans to cash out without taking a big tax hit

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Wealthy people can use their stock portfolios or other assets to tap cheap loans and avoid acapital-gainstax hit. Portfolio-based lending is not new, but the pandemic's market rally and low interest rates turbocharged borrowing among America's wealthy. A big use of these kinds of loans right now is

all-cash offerson real estate. Executives are also borrowing against their portfolios to pay taxes rather than selling assets. Securities-based lines of credit can be taken out only against nonretirement assets and typically have a higher minimum than margin loans, which, unlike SBLOCs, can be used to buy stock. Larger lines of credit also typically incur lower interest rates.

Private bank clients are also taking loans out against theirfine art, yachts, jets,and even stakes in sports team.  Whether they use the proceeds to expand their collections or invest in private equity is up to them. A big plus is that the borrowers get to keep enjoying their art, jets, and yachts while pumping money into other investments. It's also cheaper than selling stock and incurring capital gains taxes, which can total nearly 40% for top earners in high-tax states like California.

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Here's a look at the strategies rich people are using:For wealthy parents, securities-based loans are a way to pass on their riches to their children at a low cost.Ghislain & Marie David de Lossy/Getty ImagesSecurities-based lending has been turbocharged by low interest rates and a scorching housing market. For wealthy parents, these loans are a way to pass on their wealth to their children at a low cost.

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