Buy, borrow, die strategy explained for 2026

Wealthy individuals and high-net-worth families have long used a powerful wealth-building framework known as the buy-and-borrow-to-die strategy to grow their assets while significantly reducing lifetime tax obligations. For anyone seeking to legally avoid capital gains tax, this approach leverages the tax code's treatment of unrealized gains, loan proceeds, and inherited property to create a cycle of wealth accumulation that minimizes the impact of capital gains taxes across generations.

The strategy centers on three distinct phases that work together to defer, reduce, and ultimately eliminate capital gains taxes on appreciated assets. By purchasing investments that grow in value, borrowing against those assets instead of selling them, and passing the portfolio to heirs who receive a Tax loss harvesting reset through the stepped-up basis rule, families can preserve and transfer substantially more wealth than traditional liquidation strategies allow.

Understanding how each phase operates within current tax law is essential for anyone looking to build long-term wealth while keeping their effective tax rate as low as possible. The 2025 and 2026 tax environment presents both opportunities and potential risks, making this strategy particularly relevant for proactive planning.

How the buy phase builds tax-deferred wealth

The first step of the buy-and-borrow die strategy involves acquiring assets expected to appreciate significantly over time. These typically include stocks, real estate, business interests, and other investments that generate long-term capital growth rather than immediate taxable income.

The key advantage during this phase is that appreciation in asset value is not taxed until the asset is sold. Under IRC Section 1001, a taxable event occurs only upon a realization event, such as a sale or exchange. This means an investor can hold a portfolio worth millions in unrealized gains without owing a single dollar in capital gains taxes.

Strategic asset selection during the buy phase focuses on investments that offer strong growth potential, favorable tax treatment, and value as collateral for future borrowing. Common asset categories include:

• Publicly traded equities and index funds with long-term appreciation potential
• Commercial and residential real estate that benefits from the Sell your home exclusions and depreciation deductions
• Private business equity and startup shares are eligible for Individual tax strategies that reduce capital gains exposure
• Alternative investments such as private equity funds and venture capital positions
• Concentrated stock positions in high-growth companies

Tax-efficient investing during the buy phase also means pairing growth-oriented holdings with tax-advantaged accounts like a Traditional 401k or a Health savings account to shelter additional income from current-year taxation. This layered approach ensures that both taxable and tax-deferred accounts work in concert to maximize total portfolio growth.

Why borrowing against assets beats selling them

The borrow phase is where the strategy delivers its most immediate tax advantage. Instead of selling appreciated investments to fund lifestyle expenses, business ventures, or major purchases, the investor takes out loans secured by those assets. Because loan proceeds are not treated as taxable income under federal tax law, this approach provides liquidity without triggering capital gains tax.

Securities-based lending, margin loans, and portfolio lines of credit are the most common vehicles for this phase. Lenders typically advance 50% to 70% of a portfolio's market value at interest rates often well below the capital gains tax rate the borrower would face if selling the same assets.

Consider an investor holding $5 million in appreciated stock with a cost basis of $1 million. Selling the stock would generate $4 million in long-term capital gains, resulting in a federal tax bill of approximately $952,000 at the combined 23.8% rate (20% capital gains plus 3.8% net investment income tax). Instead, a portfolio line of credit at 6% interest on $3 million costs $180,000 annually, a fraction of the tax liability that selling would produce.

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The interest expense may also be deductible in certain situations, depending on how the borrowed funds are used. Investment interest expense can offset investment income, and interest on loans used for business purposes may qualify as a business deduction, as outlined in IRS Publication 550. The math consistently favors borrowing over selling for investors with substantial unrealized gains and access to competitive lending terms.

Real estate investors apply the same principle through cash-out refinancing. Rather than selling a rental property and facing recapture taxes and capital gains, an Oil and gas deduction investor or property owner can refinance to extract equity tax-free while continuing to benefit from appreciation and income generation.

How the stepped-up basis completes the tax-free cycle

The die phase completes the strategy by leveraging IRC Section 1014, which resets the cost basis of inherited assets to fair market value on the date of death. While other articles explain the stepped-up basis as an estate-planning tool, the critical insight for the buy-and-borrow-to-die strategy is how this provision interacts with outstanding debt to create a tax-free liquidity cycle.

Returning to the earlier example, the $5 million stock portfolio with a $1 million cost basis would pass to heirs with a new cost basis of $5 million. The $3 million in outstanding portfolio loans can then be repaid by selling inherited shares at the stepped-up basis, generating zero taxable gain on the sale. The remaining $2 million in equity transfers to heirs completely free of capital gains tax, and the full $4 million in lifetime appreciation is permanently erased from the tax rolls.

This debt-plus-step-up mechanism distinguishes buy-and-borrow from simple buy-and-hold investing. The borrowing phase provides ongoing liquidity throughout the investor's lifetime. At the same time, the stepped-up basis at death ensures that neither the investor nor their heirs ever pays capital gains tax on the appreciation. IRS Publication 559 provides detailed guidance for survivors and executors managing these estate settlement responsibilities.

The stepped-up basis applies to most types of property, including stocks, bonds, real estate, business interests, and collectibles. Business owners who rent their homes for corporate meetings through the Augusta rule can build additional tax-free income during their lifetime while their underlying real estate continues to appreciate toward the eventual step-up. In community property states, married couples may receive a double step-up: the surviving spouse also receives a stepped-up basis on their half of jointly held community property. Separate property states generally only step up the decedent's share.

2026 tax considerations that affect this strategy

The buy, borrow, die strategy operates within a regulatory landscape that shifted significantly with the passage of the One Big Beautiful Bill Act (OBBBA) on July 4, 2025. The OBBBA permanently increased the federal estate tax exemption to $15 million per individual ($30 million for married couples) starting January 1, 2026, with inflation indexing beginning in 2027. This permanent exemption replaces the temporary TCJA provisions that were set to expire and provides long-term certainty for the die phase of this strategy.

The higher exemption means that individuals with estates below $15 million will owe no federal estate tax at death, making the stepped-up basis benefit even more powerful since heirs receive assets at fair market value without any offsetting estate tax liability. For ultra-high-net-worth families with estates exceeding $15 million, the 40% federal estate tax rate still applies to amounts above the exemption, underscoring the importance of strategic borrowing and wealth-transfer planning. Individuals should review their 2026 California State Tax Deadlines and other applicable state filing requirements to ensure compliance with both federal and state obligations.

While the OBBBA preserved the stepped-up basis provision, future legislative sessions could still target this rule. Past proposals have suggested a carryover basis system or a deemed realization event at death, though none have been enacted. The permanence of the current exemption does not guarantee the step-up's permanence, making it important to stay current with tax law developments and maintain flexible estate plans.

Interest rate environments also play a role in the borrow phase. Rising interest rates increase the cost of borrowing against assets, narrowing the spread between loan costs and the tax savings from avoiding a sale. Investors should regularly evaluate whether the borrowing advantage remains favorable relative to strategic partial liquidation strategies, such as Tax loss harvesting to offset realized gains.

Who benefits most from this approach

The buy-and-borrow strategy is not limited to billionaires, though it is most commonly associated with ultra-wealthy families. Any individual with a significant portfolio of appreciated assets, access to favorable lending terms, and a long-term wealth transfer perspective can benefit from elements of this framework.

Business owners who have built substantial equity in their companies are particularly well-positioned. Rather than selling a business outright and facing a large capital gains tax event, they can borrow against the business value to fund retirement, new ventures, or personal expenses. Combining this approach with entity optimization strategies, such as Late S Corporation elections, can further reduce the tax burden during the accumulation phase.

Real estate investors with portfolios of appreciated properties can refinance and use 1031 exchanges during their lifetimes, then pass the entire portfolio to heirs with a stepped-up basis. This combination eliminates both the deferred gains from exchanges and the original appreciation, creating a powerful multi-generational wealth transfer mechanism. Families can also layer on Child & dependent tax credits and other annual tax benefits to further reduce household tax liability during the accumulation years.

Investors saving for retirement through a Roth 401k can complement the buy, borrow, die strategy by creating a separate pool of tax-free income that reduces the need to borrow against taxable accounts during retirement. This diversification across tax treatments provides flexibility and resilience against future tax law changes.

Risks and limitations to keep in mind

While the buy-and-borrow strategy offers compelling tax advantages, it also carries risks that require careful management. Market downturns can reduce the value of collateral, potentially triggering margin calls that force asset sales at unfavorable prices and generate unexpected tax liabilities. Maintaining conservative loan-to-value ratios and diversified collateral helps mitigate this risk.

Interest rate volatility adds another layer of uncertainty. Variable-rate lending products can see costs increase significantly during periods of monetary tightening, eroding the tax advantage of borrowing versus selling. Locking in fixed-rate terms when possible provides more predictable cash flow and preserves the strategy's economic benefit.

Estate planning complexity also increases when substantial debt is involved. Heirs inherit both assets and liabilities, meaning outstanding loans must be managed during the estate settlement process. Proper coordination between investment advisors, tax professionals, and estate planning attorneys is essential to ensure the strategy functions as intended across generations.

The strategy requires ongoing professional guidance to navigate changing tax laws, lending conditions, and portfolio dynamics. Working with qualified advisors who understand both the tax and investment implications ensures that each phase of the strategy remains optimized for current conditions.

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Frequently asked questions

Q: Is the buy, borrow, die strategy legal?

A: Yes, the buy, borrow, die strategy is entirely legal and relies on well-established provisions of the Internal Revenue Code. The deferral of unrealized gains, the non-taxable nature of loan proceeds, and the stepped-up basis at death under IRC Section 1014 are all longstanding features of federal tax law that apply to all taxpayers.

Q: How much wealth do I need to use the buy, borrow, die strategy?

A: While the strategy is most commonly associated with high-net-worth individuals, anyone with a meaningful portfolio of appreciated assets can apply its principles. Most securities-based lending programs require a minimum portfolio value of $100,000 to $250,000, making the borrow phase accessible to a broader range of investors than many assume.

Q: What happens to the loans when the asset owner dies?

A: Outstanding loans are typically repaid from the estate, often by selling a portion of the inherited assets at the new stepped-up cost basis. Because the step-up eliminates unrealized capital gains, heirs can sell assets to cover the debt with little to no tax liability on the sale proceeds.

Q: Could Congress eliminate the stepped-up basis?

A: Congress has considered proposals to modify or eliminate the stepped-up basis rule multiple times, most recently in 2021. However, none of these proposals has become law. The One Big Beautiful Bill Act of 2025 explicitly preserved the stepped-up basis at death while permanently increasing the estate tax exemption to $15 million per individual. Taxpayers should still monitor future legislative developments and maintain flexible estate plans.

Q: How does the buy, borrow, die strategy interact with state taxes?

A: State tax treatment varies significantly. Some states impose their own capital gains, estate, or inheritance taxes, which can affect the strategy's overall effectiveness. Residents of high-tax states should factor in state-level obligations when evaluating the net benefit of borrowing versus selling, as well as the total estate tax exposure at death.

Q: Can I use this strategy with real estate investments?

A: Real estate is one of the most effective asset classes for the buy, borrow, die strategy. Property owners can benefit from appreciation, cash-out refinancing for tax-free liquidity, depreciation deductions during ownership, and the stepped-up basis at death that eliminates both accumulated depreciation recapture and capital gains for heirs.