Buy, Borrow, Die Strategy to Avoid Taxes Explained

The Buy, Borrow, Die strategy is a tax planning strategy that wealthy people use to pay less in taxes and grow their money. This approach uses current tax laws to delay or avoid taxes, especially on investment profits.

This tax avoidance strategy is typically associated with high-net-worth individuals, but even among the wealthy, it's not right for everyone. Learning how this strategy works can help you decide if parts of it might help your financial plan.

What Is the Buy, Borrow, Die Strategy?

The Buy, Borrow, Die strategy is a way to enjoy your wealth with lower tax liability. Instead of selling investments and paying taxes on the profits, wealthy people buy assets, borrow money against those assets when they need cash, and hold the assets until death.

Buy, Borrow, Die works because the IRS doesn't treat loans as taxable income, and when assets pass to heirs at death, years of tax obligations on the growth can disappear.

The Buy, Borrow, Die strategy has three main steps:

Buy: Get assets that grow in value over time, like stocks, real estate, or business ownership, and keep them for many years. The key point is never selling these assets, which means you never pay capital gains taxes on their increased value.
Borrow: Instead of selling your assets when you need money, take out loans using those assets as backing. These loans give you cash without creating tax bills. The interest rates on these loans are usually lower than regular loans because they're backed by valuable assets.
Die: When you die, your family gets your assets at their current market value for tax purposes. This wipes away any taxes that would have been owed on the growth in value during your lifetime.

Learn more about passing money to your heirs tax-free.

How Do Wealthy People Borrow Against Their Assets?

Rich people use several financial tools to get money from their assets:

Securities-Based Lines of Credit: These are loans that use investment accounts as backing. Borrowers can usually get 50-95% of their portfolio's value in cash, depending on what types of investments they own. Interest rates are lower than personal loans because the investments serve as protection for the lender.
Margin Loans: These work like securities-based credit lines but come directly from brokerage firms. They typically have lower interest rates but come with risks if your investments drop in value.
Private Banking Loans: Very wealthy people often work with special banks that create custom loan packages based on all their assets, including property, businesses, and investments.
Real Estate Loans: Options like cash-out refinancing, home equity lines of credit, or commercial property loans let people borrow against their property value without selling.

These borrowing methods provide cash without selling assets, thus avoiding capital gains tax liability that would normally be due on investment profits. Plus, the loan money isn't counted for income tax purposes.

The Steps of the Buy, Borrow, Die Strategy

Step 1: Buy

The first step is buying assets that will grow in value over time.

Wealthy people often focus on growth-oriented investments like stocks, ETFs, and mutual funds that increase in value over many years, real estate, and ownership in private companies or startups. Some people also explore alternative investments like art, collectibles, and other unique assets that tend to increase in value.

For the best tax benefits, you should choose assets that are likely to grow significantly and hold them for the long term.

By never selling appreciated assets, you never trigger capital gains taxes. Even if your stock portfolio grows from $1 million to $10 million, you pay zero taxes on that $9 million gain as long as you don't sell.

Step 2: Borrow

Instead of selling assets when they need money, wealthy people borrow against them.

Wealthy people take out loans using their investments or properties as collateral, securing interest rates that are usually quite low because the loans are backed by valuable assets.

For example, Charles Schwab offers a Pledged-Asset Line with interest rates between 6.72% and 8.72% (as of April 2025).

With this strategy, wealthy people can typically access 50-95% of their investment value in cash, depending on what type of assets they own. This borrowed money can be spent on anything they want - daily living expenses, new investments, business opportunities, or luxury purchases - all without triggering tax consequences.

The Buy, Borrow, Die strategy works because:

Borrowed money is not considered income, so it's not subject to income tax.
You don't have to sell any assets, so no capital gains taxes are triggered.
The interest paid on these loans may sometimes be tax-deductible if used for certain investments.

Some wealthy people even use new loans to pay off older loans as their assets continue to appreciate, creating a continuous cycle of tax-free cash flow.

Step 3: Die

The final step of the strategy occurs at death with important tax advantages.

When someone dies, their assets receive what's called a "step-up in basis" in the tax code to the current market value. This means any growth that occurred during their lifetime is never taxed.

Heirs inherit the assets at their value on the date of death, not the original purchase price.

For example, if someone bought stock for $1 million that grew to $20 million by the time they died, their heirs would inherit the stock valued at $20 million. If they sold it immediately, they would owe zero capital gains tax. This greatly reduces the tax burden.

The loans taken out against the assets are typically paid off from the estate, but since the assets receive the step-up in basis, selling some assets to pay off the loans can be done with minimal impact and no hefty tax bill.

Buy, Borrow, Die Strategy Examples

Here are a few examples to help you understand the Buy, Borrow, Die Strategy better.

Example 1: Company Stock

You have $5 million in company stock that you originally got for $200,000.

Buy: You hold onto your company stock and never sell it.
Borrow: You take out a 3.5% loan against your stock for $1.3 million to pay for your child's college and a vacation home. You pay about $45,500 in annual interest instead of over $1 million in potential capital gains tax.
Die: Your children inherit the stock at its current value. They pay no tax on the growth from $200,000 to whatever it's worth when they inherit it.

Example 2: Real Estate

You own rental properties worth $8 million that you bought for $2 million.

Buy: You keep all your properties and collect the rental income.
Borrow: You borrow $750,000 against your properties at 4% interest to renovate your home and help your family. Your $30,000 annual interest cost is less than the capital gains tax you'd pay by selling.
Die: Your heirs get the properties at their market value when you die. They can sell with no capital gains tax on the appreciation that happened during your lifetime.

Example 3: Business and Investments

You have a business and investment portfolio worth $25 million that cost you $4 million to build.

Buy: You maintain ownership of these assets for long-term growth.
Borrow: You set up a $3 million credit line at 3.2% interest, using your assets as collateral. Your $96,000 yearly interest is much less than the taxes from selling assets.
Die: Your heirs receive everything at the current market value. They can sell without paying capital gains tax on all the growth that happened while you owned the assets.

Overall, Buy, Borrow, Die can be a smart investment strategy that helps the rich avoid taxes. However, there are also important nuances to consider. Let's take a closer look at them.

Related Article | How to Legally Avoid Taxes

What Are the Cons of Buy, Borrow, Die?

Despite its tax advantages, the Buy, Borrow, Die strategy isn't as widely used as you might expect, even among the wealthy. Recent research by economists Zachary Liscow from Yale and Ed Fox from Michigan found that the strategy isn't as popular as previously believed.

Here's why.

Most wealthy people don't need to borrow: The biggest reason wealthy people rarely use this strategy is that they typically have enough cash flow from dividends, interest, business income, or salaries to cover their living expenses without borrowing or selling assets.
Growing debt can be risky: Taking on debt that grows over time creates financial risk. If asset values drop significantly (like during a market crash), you might face margin calls or loan repayment demands at the worst possible time.
Interest costs add up: While loan interest rates may be lower than capital gains tax rates, they're not zero.
Estate planning complications: Dying with large loans against your assets can create complications for your estate and heirs. They might be forced to sell assets quickly to repay loans, potentially in unfavorable market conditions.

For the best tax efficiency, it's best to work with a knowledgeable tax expert or a financial advisor who can help you create the best strategy for wealth accumulation, whether it's through Buy, Borrow, Die or another strategy available under the existing tax code.

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Why Does the Buy, Borrow, Die Strategy Primarily Work for People Who Are Already Wealthy?

The Buy, Borrow, Die strategy is usually used by people who are already wealthy.

You need substantial assets (typically millions of dollars) to make this approach worthwhile, as most lenders won't offer asset-backed loans unless the collateral value is significant.

Wealthy people also get access to much lower interest rates and have diverse asset portfolios that can serve as collateral. The average person's wealth is typically concentrated in their home and retirement accounts, which are harder to borrow against efficiently.

FAQs

What Is the Buy, Borrow, Die Tax Loophole?

The Buy Borrow Die strategy isn't technically a tax loophole, it's a legal approach that takes advantage of how different parts of the tax code work together. It combines three existing tax rules: capital gains are only taxed when assets are sold, loan proceeds aren't taxed as income, and inherited assets get a "stepped-up basis" that erases capital gains tax liability. It's a completely legal way to avoid paying taxes.

How Do You Pay Back Loans in Buy, Borrow, Die?

Loans are typically managed in a few different ways. Many wealthy people pay only the interest on their loans, not the principal, keeping the debt active for many years. Some refinance their loans periodically as their assets grow in value, taking out new, larger loans to pay off the old ones. Others may pay down loans using income from dividends, rental properties, or business interests. The most important thing is that the underlying assets are never sold to repay the loans, which would trigger capital gains taxes and defeat the purpose of the strategy.

Who Will Repay the Loan If the Borrower Dies?

When someone using the Buy Borrow Die strategy passes away, their outstanding loans become a liability of their estate. Typically, the executor of the estate will either pay the loans using other liquid assets in the estate, sell some of the appreciated assets (now with a stepped-up basis, so no capital gains tax), or the heirs might take over the loans and continue the strategy. Because the assets receive a stepped-up basis at death, selling them to pay off loans doesn't create the tax bill it would have during the borrower's lifetime.

Is the Buy, Borrow, Die Tax Strategy Right For You?

The Buy, Borrow, Die strategy is realistically only suitable for wealthy households with assets worth millions of dollars. If you don't have significant appreciated assets, access to low-interest loans, or the ability to comfortably pay interest for years, this strategy isn't practical for you.

Even among wealthy households, many choose not to use this approach.

That said, it can work well for certain groups of people and goals. You should work with a knowledgeable tax advisor to discuss the best ways to build your financial legacy and minimize your tax burden.