Currently what billionaires do is never sell their assets so that they never have to pay capital gains tax (since they haven’t realised the gain), but then take out large loans using those assets as collateral and live off the loans. That allows them to enjoy the benefits of their capital gain without ever paying tax on it.
The line you quoted is saying that if you use some asset as collateral for a loan then for tax purposes that should count as realising any gains in value
Perfect, thanks, the additional context of this applying to billionaires living off of loans based on assets held in the form of unrealized gains makes it make sense. I just wanted to make sure the quoted line wasn’t implying something like lenders being required to accept realized gains being made from said loan in the future as collateral when granting the loan in the first place.
Under the current system, i think we’d call these interest only loans. It only works in a scarce resource situation that drives cost. And we do exactly this to eliminate private mortgage insurance, a debt to equity ratio.
Can you explain what you mean by this?
Functionally how would that work? Maybe I’m being obtuse here, but it sounds like a Catch-22.
Currently what billionaires do is never sell their assets so that they never have to pay capital gains tax (since they haven’t realised the gain), but then take out large loans using those assets as collateral and live off the loans. That allows them to enjoy the benefits of their capital gain without ever paying tax on it.
The line you quoted is saying that if you use some asset as collateral for a loan then for tax purposes that should count as realising any gains in value
Perfect, thanks, the additional context of this applying to billionaires living off of loans based on assets held in the form of unrealized gains makes it make sense. I just wanted to make sure the quoted line wasn’t implying something like lenders being required to accept realized gains being made from said loan in the future as collateral when granting the loan in the first place.
Exactly this. Billionaires does this because the interest rate is cheaper than paying taxes.
Under the current system, i think we’d call these interest only loans. It only works in a scarce resource situation that drives cost. And we do exactly this to eliminate private mortgage insurance, a debt to equity ratio.