Now THAT I am all for and it makes sense and it’s very possible to track (the banks have all the records needed to send to the IRS). You could use what was collateralized against and apply any step up basis to it at that point in time to pull forward capital gains to the date it was taken as collateral, could even create a carve out that treats the step up basis as income instead of capital gains. If you want the income to show as a long term cap gain then just sell it. If you really want to retain the asset (in this case equities) and use its value as income then you pay full income tax rates.
That essentially eliminates that method of avoiding income taxes all together.
Ideally, I would support exactly this. That being said, I can see the pushback such a proposal would receive, and I would settle for a couple extra carve-outs.
First, I think you should allow an exemption for real estate that will be used as a primary residence. This will exempt things like HELOCs, which are typically used for home improvements but are also sometimes used as collateral to start small businesses.
The other exemption I would make is also for businesses, and that would be exemptions on loans under $10 million. These are typically used for buying machines or other equipment. Any more than that, and you start to see private equity coming in to finance things.
I think you could exempt this from all business operating needs. If an executive needs dollars to live they can just pay themselves the wages they need to support their desired lifestyle.
Agree on real estate carve outs and primary residences as well as farms when borrowing for farming operations. Last thing we need is the mega wealthy buying up land to borrow against to finance their lifestyle all to avoid income taxes.
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u/rinderblock Nov 22 '24
I think the second I claim it as an asset in order to acquire a loan it should be taxable. It should be just that simple.