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Subject:  Re: How the rich avoid taxes Date:  6/13/2021  12:12 AM
Author:  bighairymike Number:  132781 of 132988

Is this how it works? - SG


I don't get how this is advantageous.

Let say a rich person needs $1M a year to maintain their life style.

He can borrow against his portfolio at lets say 4%, or $40K per year. That interest is deductible so maybe his effective rate is 2.5%.

Alternatively he can sell assets and pay cap gains at 15%. Even with a zero basis and paying 15% on the entire $1M of assets sold, after six years he will reach a break even point with the loan having paid 15% interest over the six year period (2.5% effective interest cost per year times six years).

The Cap Gain tax is paid once, but interest on the portfolio loan continues forever or at least until he borrowers estate is settled. So starting in year 7, he is behind and goes further behind each additional year the loan remains outstanding.
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