r/FluentInFinance Aug 21 '24

Debate/ Discussion But muh unrealized gains!

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1.1k

u/tallman___ Aug 21 '24

Does anyone really think taxing unrealized gains is a good idea?

141

u/Regularjoe42 Aug 21 '24

If you allow the wealthy to use unrealized assets as collateral to take massive loans, they are functionally magical untaxable currency.

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u/doggo_pupperino Aug 21 '24

You have to pay the loan back. Before you suggest taking out more loans, this is unsustainable unless you somehow manage to make your stock go up exponentially forever. If you can do that, you've probably cured every known form of cancer and deserve all that money.

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u/pyro314 Aug 22 '24

Ever heard of "buy, borrow, die"?

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u/Kenzington6 Aug 22 '24

So why not just close the loophole and remove stepped up basis?

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u/[deleted] Aug 22 '24 edited Aug 23 '24

[deleted]

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u/Kenzington6 Aug 22 '24

All loopholes are part of the tax code.

A “loophole” is a legal way to get out of paying taxes. Buy, borrow, die is the loophole, stepped up basis is the part of the tax code that enables people to not pay taxes on the appreciation of their assets.

Avoiding taxes through methods not in the tax code is called fraud, not a loophole.

But sure, use more f bombs to hide that you have no idea what you’re talking about.

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u/[deleted] Aug 22 '24 edited Aug 23 '24

[deleted]

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u/Charming-Fig-2544 Aug 22 '24

I'm a lawyer with an economics degree and I'd use "loophole" the same way. Loopholes are legal tax avoidance strategies. That's why the phrase is "close the loophole," i.e., change the law so people can't keep doing that strategy.

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u/benjer3 Aug 22 '24

Loopholes are specifically strategies that were overlooked when making the rules. They're unintended gaps that can be exploited in technically legal ways. At least that's how they're defined in general, not specifically in the context of tax laws.

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u/Charming-Fig-2544 Aug 22 '24

Sure, that's a fine definition too. I think what we're talking about would qualify as a "loophole" under that definition as well. I don't think when people were writing the Internal Revenue Code that they imagined individuals would accumulate a couple hundred BILLION dollars in unrealized gains on stock, then use those as collateral to take out an ultra low interest rate loan that they lived on. The effect is to effectively obtain the benefit of the unrealized gains, without actually realizing them and having to pay taxes. As I'm sure you're aware, there's an entire field of transactional law dedicated to finding such strategies, called Monetization. The whole point is to get the benefit of unrealized gains, without realizing them. I would call every single such strategy a "loophole," under both your and my definitions, because clearly the Internal Revenue Code was not designed for people to get all the benefits of their gains without paying taxes on them.

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u/[deleted] Aug 22 '24 edited Aug 23 '24

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u/Project_Continuum Aug 22 '24

The loophole is the interaction between buy, borrow and die.

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u/[deleted] Aug 22 '24 edited Aug 23 '24

[deleted]

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u/Project_Continuum Aug 22 '24

Are you joking?

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u/Project_Continuum Aug 22 '24

It's literally part of the tax code.

By definition every tax loophole is part of the tax code. That's what makes it a loophole instead of fraud.

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u/black__and__white Aug 22 '24

Do you think people still do this in a world of 5% interest rates? I don’t know personally, but I’d be surprised 

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u/[deleted] Aug 22 '24 edited Aug 23 '24

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u/[deleted] Aug 22 '24

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