Ultra-wealthy use Buy Borrow Die strategy to avoid capital gains tax

The ultra-wealthy employ a sophisticated strategy known as Buy, Borrow, Die to accumulate wealth, access liquidity, and legally avoid capital gains taxes. This strategy involves purchasing appreciating assets, borrowing against them without selling, and passing them on to heirs upon death, who then benefit from a "step-up in basis" under U.S. tax law, effectively erasing the capital gains tax.

This approach begins with the acquisition of assets that increase in value over time, such as stocks, real estate, business shares, and crypto assets like BTC, ETH, or SOL. The gains from these assets remain unrealized until they are sold, allowing the owner to defer capital gains taxes indefinitely.

Instead of selling these assets to access liquidity, the wealthy borrow against them using platforms like Aave, Maker, or centralized services offering crypto-backed loans. These loans are not considered income, so no taxes apply. The borrowed money can be used to fund a luxury lifestyle, reinvest in more assets, or cover living expenses. This method allows the owner to maintain ownership of the asset, which continues to grow in value, and defer taxes indefinitely.

Upon the owner's death, their assets receive a "step-up in basis," meaning the cost basis is reset to the current market value. If the heirs sell the asset right after the owner's death, they owe zero capital gains tax. This strategy allows wealth to compound tax-free, with minimal government interference, and can be used for generations.

Crypto users can also employ this strategy, but with caution. Crypto lending platforms allow users to borrow against assets without selling, but users must be aware of liquidation risks due to the volatility of crypto. This strategy assumes long-term bullishness on the assets and requires users to be ready for changing tax laws, as this loophole is under political scrutiny.

Critics argue that the Buy, Borrow, Die strategy favors the ultra-wealthy, widening the wealth gap. Governments are eyeing ways to tax unrealized gains, remove the step-up in basis, and close loopholes around wealth transfers. Crypto holders could eventually see similar scrutiny, especially as DeFi lending and self-custody blur the lines of regulation.

Understanding this strategy can inspire individuals to think bigger about asset appreciation, leveraging rather than liquidating, and generational planning. While it may seem like a trick reserved for billionaires, crypto gives everyone a unique opportunity to be their own bank and potentially play the same wealth game.