What Is a "Buy, Borrow, Die" Strategy?
It is a wealth planning approach consisting of 3 actions:
Buy assets that may rise in value
Borrow against them instead of selling
And hold them until death
It is critical for tax purposes, as federal capital gain is generally generated when property is sold or otherwise disposed of — while inherited property generally receives a basis equal to its fair market value on the date of death, or on the alternate valuation date if elected, subject to special exceptions. That basis reset has the potential to remove income tax on much of the lifetime appreciation for heirs.
The strategy behind…
An asset is purchased with growth potential, like stock & real estate or a business interest
Let the asset appreciate without selling it
Borrow against the asset to raise cash
The asset should be kept until death so heirs might receive a stepped-up basis
Access is granted to cash without generating a taxable sale. People leverage this method to spend money in line with the asset growth — without officially realizing the gain during the lifetime.
Why do wealthy taxpayers use it?
This method is used because selling property that has gone up in value generates a large capital gains tax obligation. Taking a loan presents cash without resulting in that sale. Securities-backed lending relies on the concept. The investment account functions as collateral and a line of credit or a loan is received rather than selling the investments.
Does this concept erase tax forever?
No. The strategy delays or lowers the income tax bill — yet it doesn’t eliminate each cost or risk item.
The main limits that can be faced are outlined below:
Interest gets expensive — the IRS limits investment interest deductions to the net investment income
A decrease in asset value has the potential to generate margin calls or force to sell
Federal estate taxes are still applied to very large estates
The debt must be managed while you are alive, or your estate must settle it later
Does this help with the Massachusetts millionaires tax?
Sometimes — but only for timing the income. Massachusetts applies an extra 4% surtax on taxable income above a specific limit (annual). It applies to individuals and trusts as well as estates. In case of borrowing money to prevent claiming a gain this year, the taxable income stays lower at the moment. However, when a gain is claimed later, the surtax rules apply. It should be recognized that this is a timing method — not a permanent exemption.
Dimov Associates may assist you
Large gains should be reviewed before closing a deal — rather than waiting until taxation time. Dimov Associates is available to check the sale timing, loan-backed liquidity plans, and the records, alongside surtax exposure before the transaction. Contact us if today you require professional assistance.