Buy, Borrow, Die

The Tax Nobody Pays Until They Sell

Everything here rests on one idea: basis. Your basis is what you paid for something, plus what you put into improving it. When you sell, the difference between what you get and your basis is your gain, and the gain is what gets taxed.

Here's the part rich people figured out early. If your stock or your house goes up in value, you owe nothing. A gain is only taxed when you realize it, which mostly means when you sell. Paper wealth isn't taxed. Selling is.

Do this today: pick one thing you own. Find what you paid for it and what it’s worth now. That difference is your gain.

Buy: Own Things That Grow, Then Leave Them Alone

Step one is ordinary. Buy things that tend to go up over time: stocks, index funds, real estate, a business. The difference is what comes next. The wealthy hold them and don't sell, because every sale hands part of the growth to the IRS and leaves less money working.

Hold something more than a year before selling and the gain is taxed at the lower long-term rate. Hold it until you die and, as Lesson 4 shows, it may never be taxed at all. Time is on the side of the person who doesn't sell.

Do this today: list what you own that has grown the most since you bought it. Those are the things this class is about.

Borrow: A Loan Is Not Income

So how do you live if you never sell? You borrow against what you own. A loan isn't income, because you have to pay it back, so borrowing doesn't trigger a tax. People with stock portfolios use a securities-backed line of credit. People with real estate use a cash-out refinance or a home equity line.

Back to the rental. Sell it and you owe tax on 300,000 of gain. Borrow 150,000 against it instead and you have the cash, you still own the house, it can keep growing, and no tax is due on the gain.

The catch is that borrowing costs money. You pay interest the whole time, whether the asset grows or not. With a line of credit against stocks, if the market drops far enough the lender can demand you pay down the loan or sell — exactly the sale you were trying to avoid, at the worst possible time.

Do this today: write down every loan you have that’s secured by something you own, and its interest rate.

Die: The Step-Up in Basis

This is the step that makes it all work. Under section 1014 of the tax code, the people who inherit your assets get a new basis: the value on the day you died. The gain that built up over your whole life is wiped off the books. Nobody ever pays income tax on it.

Your estate sells a slice of the stepped-up assets, pays off the loans, and the gain on that sale is close to nothing. On a rental, the step-up also clears the depreciation you'd otherwise have paid back when you sold, which makes it especially strong for landlords.

Not everything steps up. IRAs, 401(k)s and 403(b)s don't. Neither do things you give away while you're alive: a gift carries your original basis with it, gain and all. Give your kid the rental while you're living and they take your 100,000 basis. Leave it to them when you die and they get 400,000.

Do this today: sort what you own into two lists, “steps up” and “doesn’t.” Retirement accounts go on the second list.

The Estate Tax Is a Different Tax

The step-up wipes out the income tax on the gain. It does nothing about the estate tax, which is a tax on how much you leave behind. People mix these up all the time.

The good news for most families: under the One Big Beautiful Bill Act, passed July 4, 2025, the federal estate tax exemption is 15 million dollars per person starting in 2026, about 30 million dollars for a married couple. Below that, there is no federal estate tax. The same law kept the step-up in place. So for nearly everyone, heirs get the step-up and owe no estate tax at all.

One more thing married couples should know. In most states, when a spouse dies, only that spouse's half of jointly owned property steps up. In community property states, both halves can. A few states, Oklahoma among them, let married couples opt into community property through a special trust. Whether that's worth doing is a question for an estate attorney.

Do this today: write down how each of your bigger assets is titled: your name, your spouse’s, both, or a trust.

Where It Breaks, and the Version for the Rest of Us

Four ways this goes wrong:

• Interest eats it. Borrow long enough at a high enough rate and the interest can cost more than the tax would have.
• The market forces your hand. A big drop can trigger a margin call and a forced sale.
• The asset doesn't grow. Borrowing against something that loses value just leaves you with debt.
• The law changes. The step-up has been a target in Congress for years. It survived the 2025 law. It may not survive the next one.

You don't need millions to use the core idea. Think twice before selling something you've owned a long time and planned to keep anyway. When you need money in retirement, look at what you'd sell first: the things with the least gain, not the most. And if you mean to leave something to your kids, leaving it at death rather than handing it over early can save them a great deal.

Do this today: write three questions about your own situation to bring to a CPA or estate attorney.