Does "buy, borrow, die" really avoid all tax?
The claim: “Buy, borrow, die means you never pay tax.”
It can eliminate income tax on built-in gain, but not all tax or cost
Partly. Loan proceeds are not income, and under IRC §1014 heirs generally take a basis equal to fair market value at death, so gain built up during your life can escape income tax permanently. But estate tax can still apply above the $15,000,000 exclusion for 2026, interest costs are real, and borrowing against assets carries risk. The strategy mainly fits people with large appreciated assets who never need to sell.
Reviewed by Ebot Mbi, CPA, EA · Last reviewed · Law and figures current as of September 17, 2026
Key takeaways
- Borrowing against an asset does not trigger income tax, because a loan must be repaid.
- IRC §1014 generally sets heirs' basis at fair market value on the date of death, eliminating income tax on the built-in gain.
- The step-up applies to property included in the estate, including revocable trust assets; Rev. Rul. 2023-2 denies it for assets of an irrevocable grantor trust outside the estate.
- For 2026, the estate tax basic exclusion is $15,000,000 per person (Rev. Proc. 2025-32); amounts above it can be taxed at up to 40%.
- Loan interest, margin calls, and the need to repay the debt from the estate are the main costs and risks.
Where the claim comes from
"Buy, borrow, die" describes a pattern used by some wealthy families: buy assets that appreciate, borrow against them instead of selling to fund living expenses, and hold them until death so heirs receive a basis step-up. Headlines about billionaires paying little income tax brought the idea to social media, often summarized as "never pay tax."
The pitch often suggests that anyone with a brokerage account or a rental property can copy the approach. In practice, lenders set loan limits based on asset values, charge interest that changes with market rates, and can demand repayment or more collateral if values fall.
The mechanics are real. The summary leaves out estate tax, interest, risk, and the many people for whom the plan does not fit.
What the law actually says
Loan proceeds are not income because the borrower has an obligation to repay. You pay no income tax when you borrow against stock or real estate, but interest is a real cost. Interest on money borrowed to buy investments may be deductible as investment interest under IRC §163(d), limited to net investment income; interest on money used for living expenses is generally nondeductible personal interest under §163(h).
IRC §1014(a)(1) generally gives property acquired from a decedent a basis equal to its fair market value at the date of death. The built-in gain is not deferred to the heirs; it is eliminated for income tax purposes. The rule reaches property in a revocable trust (§1014(b)(2)) and other property included in the gross estate (§1014(b)(9)). In community property states such as Texas, both halves of qualifying community property can receive a new basis at the first spouse's death under §1014(b)(6). Exceptions include §1014(e), for appreciated property given to the decedent within one year of death and passing back to the donor, and Rev. Rul. 2023-2, which holds that assets of an irrevocable grantor trust not included in the gross estate do not get a basis adjustment.
Estate tax is separate. P.L. 119-21 set the basic exclusion amount at $15,000,000 for 2026, indexed for inflation after that, and Rev. Proc. 2025-32 confirms the 2026 figure. Taxable estates above the available exclusion can be taxed at rates up to 40%. Debts, including the loans used in the strategy, are generally deductible from the gross estate, and the estate or heirs must repay them, often by selling assets after death.
What is true and what is not
Here is how the claim compares with the rules:
- True: borrowing against appreciated assets does not trigger income tax.
- True: the basis step-up can permanently remove income tax on gain that built up during your life.
- Not true: no tax is ever paid. Estate tax can apply to larger estates, and income from the assets, such as dividends and rent, is taxed every year.
- Not true: borrowing is free. Interest accumulates, and falling asset values can force sales at the worst time, which triggers the tax the plan was meant to avoid.
- Not true: it fits everyone. It requires substantial appreciated assets, enough liquidity to service debt, and a plan to hold the assets until death.
What to do instead
Start by listing which assets have large built-in gains and which you are likely to hold for life. For those, the step-up may be valuable, and decisions about gifting them during life should weigh the loss of the step-up against estate tax savings.
If you are considering borrowing, compare after-tax interest cost with the tax on a partial sale, stress-test the loan against a market decline, and confirm how the debt would be repaid at death. Keep records of basis and date-of-death values so your heirs can support the new basis.
Compare the plan with alternatives that may fit better. Selling gradually in lower-income years, harvesting losses to offset gains, donating appreciated assets to charity, or using retirement accounts can each reduce tax without adding debt.
Make sure the estate plan matches the strategy: how assets are titled, whether they will be included in your estate, and how liquidity will be provided to pay debts and any estate tax. We coordinate with your attorney, who drafts the legal documents.
How ebotCPA helps
We model the income tax, estate tax, and interest effects of holding, borrowing, or selling for your assets, and work with your estate planning attorney so titling and trusts support the result you want.
Book a $497 Case Analysis to have Ebot Mbi, CPA, EA review your facts before you act.
Assumptions: Tax year 2026; married filing jointly; other taxable income of $700,000, above the $613,700 point where the 20% capital gain rate begins (Rev. Proc. 2025-32).; Stock bought for $500,000, now worth $1,500,000, held more than one year.; Modified AGI is well above the $250,000 threshold for the 3.8% net investment income tax under IRC §1411.; Alternative: borrow $400,000 at 7% interest-only for 10 years; the stock is still worth $1,500,000 at death; the estate is below the exclusion. Texas resident, so no state income tax.
| Built-in gain ($1,500,000 − $500,000) | $1,000,000 |
|---|---|
| Sell now: capital gain tax (20%) | $200,000 |
| Sell now: net investment income tax (3.8%) | $38,000 |
| Sell now: total federal tax | $238,000 |
| Borrow instead: interest over 10 years ($400,000 × 7% × 10) | $280,000 |
| Heirs' basis at death under §1014 | $1,500,000 |
| Heirs' taxable gain if they sell at $1,500,000 | $0 |
| Loan repaid from the estate | $400,000 |
On these assumptions, holding avoids $238,000 of federal tax on the gain, but the family pays $280,000 of interest along the way and the estate must repay the $400,000 borrowed, so the strategy's value depends heavily on rates, returns, and how long the asset is held.
Illustration only; not a projection of your results.
We coordinate with your attorney, who drafts the legal documents.
Frequently asked questions
Is borrowing against my stock taxable?
No. Loan proceeds are not income. The interest is a cost, and whether it is deductible depends on how you use the borrowed money.
Does the step-up in basis defer or eliminate the gain?
For income tax, it generally eliminates the gain that built up before death. Heirs start with a basis equal to the date-of-death value, so only later appreciation is taxed when they sell.
Do assets in a living trust get a step-up?
Generally yes. Property in a revocable trust is included in your estate and receives a new basis under §1014(b). Assets in an irrevocable trust that are outside your estate generally do not, per Rev. Rul. 2023-2.
What is the estate tax exemption for 2026?
The basic exclusion amount is $15,000,000 per person for 2026. Married couples can combine exclusions through portability if the required estate tax return is filed.
Have facts like these?
Book a $497 Case Analysis to have Ebot Mbi, CPA, EA review your facts before you act.