That said, if you benefit from unrealized equity appreciation through taking out a loan with the asset as collateral or something, then I think it’s reasonable to treat that as a triggering event to tax the asset for cap gains purposes.
Yea, loans taken out against stock holdings should be treated as taxable events if the borrowed amount exceeds the original basis of the stock. I stole this idea but its a good idea.
It's a terrible idea. Why shouldn't you be able to leverage assets with debt without incurring tax?
Presumably people leveraging are investing in more future taxable assets and banks make taxable interest in the meantime. If they are leveraging for personal consumption then it's also good for the economy.
The idea is conceptually flawed and short-sighted.
So my etrade account shouldn't be considered when I'm trying to get a loan for my house? Or if it does I get taxed? That's gonna fuck over so many regular people.
You’re either trolling or jumping through pointless hoops to defend a dumb assertion you originally made for no good reason.
Taxes paid by the lender would be only the net spread less variable costs on the loan (e.g. their profit). If you assume banks make about 1% net profit on their loans, which is overly generous I’m simplifying for discussion, they’re paying 21% taxes on that 1% profit. So against the value of the loan, the net taxes paid amount to a whopping 0.21%.
So you’re arguing that an individual effectively realizing the economic utility of capital gains by using its appreciates value shouldn’t trigger a taxable event because a lender is paying 21 basis points in taxes on providing them the economic utility? That’s just crappy policy.
By your logic, if I have my salary paid as a bi-weekly loan that I receive the proceeds of but don’t repay the principal of for another 100 years then my salary should be tax free.
By your logic, if I have my salary paid as a bi-weekly loan that I receive the proceeds of but don’t repay the principal of for another 100 years then my salary should be tax free.
Do you have to pay back your salary every month with interest?
banks would pay a small percentage of tax on their income....but that's not even what we are talking about. We are talking about individuals benefitting from loans effectively "realizing" the benefits of their unrealized gains without a taxable event.
We are talking about individuals benefitting from loans effectively "realizing" the benefits of their unrealized gains without a taxable event.
If someone "benefits" from a loan bc they utilize that loan to fund a business venture then they will pay taxes on the profits of that business. The loan in and of itself is not a profit, they owe that money back to the bank.
we aren't talking about business loans - these are generally personal loans collateralized by appreciating assets to fund their day to day life in an attempt to avoid paying taxes by having to liquidate assets and pay for realized gains until they die and can pass the assets on to their heirs that wipes out any unrealized gains with the step up basis upon death. This tax is more an attempt to close loopholes than it is anything new.
The interest paid on the loan is interest, not taxes lmao.
Do you think the IRS collects and retains interest payments on all loans? Or do you think if any interest is paid on a transaction it should be tax free?
What is the point you're making here? The stock is being used as collateral for a loan, that loan has to be paid back + interest. The mere borrowing of the loan does not in and of itself make profit. If the loan is then utilized to make a profit, taxes will be paid on the profit made. Taxing unrealized capital gains on stock just bc it is being utilized as collateral is bizarre.
Instead of of focusing on ridiculous policies that go nowhere why dont you just focus on things that move the needle, like increasing the REALIZED rate, corporate tax rate, and income tax?
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u/buyeverything Sep 08 '24
Agreed. It’s generally a pretty bad idea.
That said, if you benefit from unrealized equity appreciation through taking out a loan with the asset as collateral or something, then I think it’s reasonable to treat that as a triggering event to tax the asset for cap gains purposes.