“Buy, borrow, die” means borrowing against appreciated investments instead of selling them, then leaving the assets to heirs.
- Why it can work: a genuine loan generally does not create taxable income, and many inherited assets receive a new tax basis at death. That can defer or reduce capital-gains tax.
- What it costs: a loan with interest, collateral requirements, and a repayment obligation that survives you.
Step-by-step breakdown
- Buy and hold an asset. Its value rises above what you paid, creating an unrealized gain. Selling would normally realize that gain. Holding does not produce cash for spending.
- Borrow against it. A lender accepts eligible assets as collateral and advances cash. A securities-backed credit line, margin loan, and home-equity loan have different rules; they are not interchangeable. Private company shares may not qualify as collateral at all.
- Leave the assets to heirs. Many inherited assets get a basis tied to their value at death, or an applicable alternate valuation. The estate still has to settle the loan and any taxes.
A loan is generally not income because you owe the money back. Cancellation of that debt can have a different tax result.
IRS Publication 559 explains inherited basis and its exceptions. Retirement accounts and income owed to a person before death do not simply receive the same treatment as appreciated stock in a taxable brokerage account.
The math of borrowing: a worked example
| Choice | Upfront | Ongoing |
|---|---|---|
| Sell $1 million | $190,400 tax, $809,600 left | No loan |
| Sell to net $1 million | Sell about $1,235,178, $235,178 tax | Less stock invested |
| Borrow $1 million at 7% | $1 million, no gain realized | $70,000/yr interest + principal |
The fair comparison uses the same spendable cash. Comparing a $1 million loan with a $1 million sale would hide the shortfall from the sale’s tax bill.
At an unchanged rate and loan balance, four years of interest totals $280,000. That is already more than the example’s immediate sale tax.
It is not a complete break-even calculation. These all affect the outcome:
- investment returns
- changing rates
- repayment timing
- tax deductions
- later taxes
It does show why a tax deferral can be expensive to maintain.
Risks and limitations to consider
- The lender can need cash when you least want to sell. If collateral falls in value or no longer qualifies, you may have to add assets, repay part of the loan, or face a forced sale. A sale can create a capital gain even after a market decline if the stock still sits above its original basis.
- Interest is a recurring bill. Many loans have variable rates. Do not assume the interest is deductible merely because investments secure the loan; tax treatment depends on factors including how the borrowed money is used. The IRS interest-expense guidance distinguishes personal and investment interest.
- Borrowing preserves concentration. Keeping one large stock position means keeping its downside. Your net worth can fall while the dollar amount of the loan stays unchanged.
- Estate and income taxes are separate. An inherited-basis adjustment does not erase estate tax, settle creditor claims, or apply to every asset. Your heirs also need enough liquidity to handle the estate’s obligations.
For margin borrowing, Interactive Brokers’ disclosures describe interest costs and the possibility of calls or liquidation. A securities-backed credit line can have different terms; your lender’s contract controls your loan.
Is this strategy right for you?
Start with the repayment source. A short loan backed by a known cash inflow is a different decision from borrowing indefinitely to cover living expenses.
Before you borrow:
- Compare the alternatives: selling, borrowing less, selling higher-basis shares, and delaying the spending.
- Stress-test a lower portfolio value and a higher interest rate.
- Ask whether you could meet a collateral call without selling the same investments into a decline.
The useful question is whether the tax you defer is worth the interest, reduced flexibility, and risk your household takes on.