What if I told you that you can use some the same tactics that Jeff Bezos, Elon Musk, and Warren Buffett use to avoid taxes? In this video we’ll look at how exactly the Buy Borrow Die strategy works and how you can use some of the same ideas as the wealthy to minimize your tax burden.

// TIMESTAMPS:

00:00 – Intro
00:17 – What Is the Buy Borrow Die Strategy?
01:17 – Buy
01:37 – Borrow
02:07 – Die
02:54 – Risks of the Buy Borrow Die Strategy

// SUMMARY:

Law professor Ed McCaffery coined the term “Buy Borrow Die” in the 1990s to illustrate the legal tax loophole that allows rich people pay proportionally less in taxes than the average American due to the fact that the American government doesn’t tax two things: unsold assets and debt. The exact quote I’ve been able to track down is: “Once you’re already rich, it’s simple, it’s easy. It’s just buy, borrow, die.”

As the name suggests, the Buy Borrow Die strategy involves buying appreciating assets, borrowing against them for income, and then simply bequeathing the assets to heirs or selling them upon death.

The first step is buying an appreciating asset. For the billionaire, this might be in the form of a startup that grows to a large company. Examples for the rest of us include investments like stocks, bonds, real estate, etc. The investor hopes to build wealth from the long-term price appreciation of the asset. Obviously the selection of such assets will determine one’s long-term return and subsequent viability of the strategy.

The next step is to borrow against that asset that has appreciated, thereby using it as collateral for the loan. This allows the investor to access capital, preferably at a low interest rate, without incurring taxes on gains by selling the asset. That capital is also tax-free because it’s debt, not income. Borrowed money can then obviously be used for expenses or other investments. This borrowing is also known as leverage. Interest on that loan may also be tax-deductible. Had the investor simply realized gains by selling the asset for income, they’d incur capital gains taxes.

The last step is to die. Kidding. Not really. Upon death, allowing the assets to be inherited significantly reduces or in some cases eliminates capital gains tax liability, as heirs receive the asset with a stepped-up cost basis. This means the heir gets a new cost basis of the fair market value of the asset at the time of inheritance. The heir could then choose to immediately sell the asset and incur zero capital gains taxes. In other words, now the asset is no longer associated with the growth up to that point during the investor’s lifetime. This is arguably the most important benefit of the entire strategy.

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#taxes #taxstrategy #taxstrategies

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Buy Borrow Die Strategy Explained – How To Avoid Taxes Like The Rich

Taxes, undoubtedly, are a significant part of everyone’s financial life. However, unlike the average taxpayer, the wealthy have mastered the art of reducing their tax burden through various strategies. One such strategy that has gained considerable attention is the Buy Borrow Die (BBD) strategy. This approach allows individuals to legally minimize their tax liabilities and preserve wealth. In this article, we will explore the Buy Borrow Die strategy and how you can effectively use it to avoid taxes like the rich.

The Buy Borrow Die strategy revolves around three key principles: buying appreciated assets, borrowing against them, and ultimately never recognizing taxable gains. Let’s break down each step and understand how they work cohesively.

Firstly, the strategy begins with buying appreciated assets. Wealthy individuals often acquire assets, such as stocks, real estate properties, or private businesses, that have experienced substantial value appreciation over time. By purchasing these assets, they create a potential tax liability since selling them would result in capital gains taxes.

Next, these assets are used as collateral to borrow money. This borrowing can be done in various ways, such as a mortgage, a line of credit, or a loan from a financial institution. By leveraging their assets, individuals can access significant amounts of cash without realizing any taxable gain.

The borrowed money serves multiple purposes. It can be used for personal expenses, investments in other ventures, or even to acquire additional appreciating assets. This strategy provides the opportunity to maintain or grow wealth while avoiding triggering any taxable events.

Lastly, the ‘Die’ part of the strategy refers to the intention of passing the assets to heirs without ever selling them during the individual’s lifetime. Upon the individual’s death, the assets receive a “step-up” in the cost basis to their market value at the time of inheritance. This step-up eliminates the capital gains tax liability on any appreciation that occurred during the original owner’s lifetime.

One of the key advantages of the Buy Borrow Die strategy is the ability to generate cash flow from assets without incurring tax. Since borrowed funds are not considered taxable income, individuals can enjoy the benefits of their assets’ appreciation while avoiding immediate tax consequences.

However, it is essential to note that the BBD strategy requires consistent financial discipline and careful planning to be successful. Diligent consideration should be given to the costs associated with borrowing money, such as interest payments and any potential risks involved in asset depreciation.

Moreover, individuals implementing this strategy should also be aware of any applicable estate taxes that may arise upon their death. While the BBD strategy can effectively avoid capital gains taxes, it may not fully alleviate estate tax obligations, depending on the jurisdiction and the value of the assets inherited.

In conclusion, the Buy Borrow Die strategy is a powerful yet complex approach to minimizing tax liabilities and preserving wealth. By strategically using appreciated assets to secure loans, individuals can maintain access to cash flow while postponing or avoiding taxable gains altogether. Implementing this strategy requires careful planning, financial discipline, and consideration of potential risks and estate tax implications. With proper guidance and a thorough understanding of the strategy, anyone can benefit from the principles of the Buy Borrow Die strategy and avoid taxes like the rich.