Buy, Borrow, Die: The Wealth Strategy Explained

The Tax Strategy the Wealthy Actually Use

Warren Buffett's effective tax rate is lower than his secretary's. Jeff Bezos borrowed against his Amazon shares instead of selling them. This isn't a loophole — it's a structural feature of the tax code called buy, borrow, die.

The strategy has three steps, and each one is legal, documented, and available to anyone with appreciating assets.

Step 1: Buy Appreciating Assets

Buy assets that grow in value over time: index funds, individual stocks, real estate, or a business. The key is that unrealized gains — growth that hasn't been sold — are not taxed.

If you buy $100K of an S&P 500 index fund and it grows to $500K over 20 years, you have $400K in unrealized gains. As long as you don't sell, you owe $0 in capital gains tax. Your net worth increased by $400K, but the IRS sees no taxable event.

Step 2: Borrow Against Your Assets

Instead of selling investments to access cash (which triggers capital gains tax), borrow against them. This is called a portfolio line of credit, securities-based lending, or margin lending.

How it works: Your brokerage (Schwab, Fidelity, Interactive Brokers) offers a line of credit secured by your portfolio. Typical terms: borrow up to 50-70% of your portfolio value at rates of 4-7% (variable, tied to Fed rates).

On a $500K portfolio, you can access $250K-$350K in cash without selling a single share. No capital gains tax. No income tax. Loan proceeds are not taxable income.

The math: if you sell $250K of stock with a $100K cost basis, you owe capital gains tax on $150K = $22,500-$35,700 depending on your bracket. Borrowing the same $250K at 5.5% interest costs you $13,750/year — and your $250K in stocks keeps compounding.

Step 3: Die (or Plan Your Estate)

This is where the strategy becomes powerful. Under current tax law, when you die, your heirs receive a stepped-up cost basis on inherited assets. That $100K of stock that grew to $500K? Your heirs inherit it at a $500K cost basis. The $400K in unrealized gains is erased permanently. They can sell the next day and owe $0 in capital gains tax.

Any outstanding loans against the portfolio get repaid from the estate. But the tax savings dwarf the interest costs. For a complete analysis of how this strategy fits into broader W2 exit planning, The W-2 Trap includes a chapter on the buy-borrow-die framework and how to apply it at different wealth levels.

Real Example at a Normal Wealth Level

Mike and Sarah, age 55, have $800K in a taxable brokerage account (cost basis: $300K, unrealized gains: $500K). They want $50K/year in retirement spending above Social Security.

Without buy-borrow-die: Sell $50K/year from the portfolio. Capital gains tax on the gain portion: roughly $6,000-$7,500/year. Over 20 years: $120K-$150K in taxes paid.

With buy-borrow-die: Borrow $50K/year against the portfolio. Interest at 5.5%: $2,750/year. No capital gains tax. Portfolio keeps compounding. Over 20 years: $55K in interest paid vs. $120K-$150K in taxes. Net savings: $65K-$95K.

When they pass, heirs receive the portfolio at stepped-up basis. Remaining loans are repaid. The tax on $500K+ in gains is permanently eliminated.

Risks and Limitations

Margin call risk: If your portfolio drops significantly (30-50%), the lender may require you to repay part of the loan or add more collateral. Keep your loan-to-value ratio under 40% to buffer against market drops.

Interest rate risk: Rates are variable. If rates rise to 8-10%, the borrowing cost may exceed the tax savings. Monitor and repay loans if rates spike.

Legislative risk: Congress has proposed eliminating the stepped-up basis rule multiple times. If it passes, the "die" part of the strategy loses its tax advantage. The buy and borrow steps still work regardless.

How to Start

You need: $100K+ in a taxable brokerage account (not IRA/401(k) — retirement accounts can't be used as collateral), a brokerage that offers portfolio lending (Schwab Pledged Asset Line, Interactive Brokers margin, Fidelity), and a financial plan that keeps loan-to-value under 40%.

Start small. Borrow 10-20% of your portfolio value for a specific need (property down payment, business investment, living expenses) and see how the interest costs compare to what you'd pay in taxes by selling.

The Bottom Line

Buy, borrow, die isn't just for billionaires. Anyone with $200K+ in appreciating assets can use this framework to access cash without triggering capital gains tax, keep investments compounding, and ultimately pass wealth to heirs at a stepped-up basis. The interest costs are real, but they're almost always less than the tax bill from selling.