Billionaires spend money they never pay income tax on, and it is legal. The three steps, the 2026 rules, the risks, and the small version you can copy.
This in-depth guide covers everything you need to know about buy borrow die: how the rich avoid taxes legally. Based on verified income data and real-world case studies from our database of 138 side hustle tactics.
Buy borrow die is a legal three-step tax plan used by very wealthy families: buy assets that grow, borrow against them for spending money instead of selling, and hold them until death so heirs inherit at a "stepped-up" basis that wipes out the built-in capital gain. Loans are not income, so the borrowing triggers no tax, and the step-up erases the gain that would have been taxed on a sale. It works best with a huge portfolio, cheap credit and a long life, and it carries real risk if markets fall.
Below is how each step works, with 2026 numbers from the IRS and a bank's own rate sheet, what the ProPublica reporting on billionaire tax returns found, where the strategy breaks, and the small version that fits a normal paycheck.
Where the phrase "buy, borrow, die" comes from
The name belongs to a tax professor. In its 2021 investigation built on leaked IRS records, ProPublica described how University of Southern California law professor Edward McCaffery "has summarized the entire arc with the catchphrase 'buy, borrow, die'" (ProPublica, June 8, 2021).
The idea rests on one quiet feature of the US income tax. You owe tax on a gain when you sell, or "realize," it. A stock that triples while you hold it creates no tax bill. For someone whose wealth sits in founder shares, that detail is the whole game.
Have you ever looked at your brokerage account, seen a big gain, and felt reluctant to sell because of the tax? That reluctance, scaled up by a factor of a million, is where this strategy starts.
Step one: buy assets that grow without paying you
The "buy" step favours assets that rise in value and pay little out along the way: founder stock, broad stock funds, private companies, land. A salary or dividend is taxed the year you receive it. Growth inside an asset you keep is taxed only when you sell.
The IRS sets the rate on that eventual sale. Assets held "for more than one year" produce long-term gains, taxed at 0%, 15% or 20% depending on income (IRS Topic 409). Higher earners can also owe the net investment income tax of 3.8 percent once modified adjusted gross income passes $200,000 for a single filer or $250,000 for a married couple filing jointly (IRS Topic 559). So a wealthy seller often faces 23.8% federal tax on a long-term gain, before any state tax.
Here is the catch for the rich. If you need cash and your wealth is mostly stock, selling means paying that 23.8% on the gain. So the next question becomes: how do you spend money you have never realized?
Step two: borrow against the portfolio instead of selling
The answer is a loan secured by the assets. A loan is not taxable income. The US Supreme Court put it plainly in Commissioner v. Tufts (1983): "When a taxpayer receives a loan, he incurs an obligation to repay that loan at some future date. Because of this obligation, the loan proceeds do not qualify as income to the taxpayer" (Cornell LII).
So instead of selling $1 million of stock, a wealthy family borrows $1 million against it and keeps every share. As long as the portfolio grows faster than the interest rate, the family gets richer while spending money that was never taxed as income.
What a securities backed line of credit is
The everyday product for this is a securities backed line of credit, often shortened to SBLOC. FINRA, the US brokerage regulator, says an SBLOC "allows you to borrow money using securities held in your investment accounts as collateral," and that a typical agreement lets you borrow "from 50 to 95 percent of the value of the assets in your investment account" depending on what you hold (FINRA, January 2024).
FINRA also notes that "SBLOCs are non-purpose loans, which means you can't use the proceeds to purchase or trade securities." The money is for spending, a house, a business or other debt.
What borrowing against stocks costs in 2026
Rates are public at some banks. Charles Schwab Bank's Pledged Asset Line page lists its rates as SOFR (a benchmark overnight rate) plus a spread that shrinks as the loan grows. Using SOFR as of October 5, 2026, the page shows these annual percentage rates, before discounts (Schwab, as of 2026):
| Loan value of collateral at origination | Spread over SOFR | APR shown, October 2026 |
|---|
| $100,000 to under $250,000 | +4.40% | 8.29% |
| $250,000 to under $500,000 | +3.90% | 7.79% |
| $500,000 to under $1,000,000 | +3.40% | 7.29% |
| $1,000,000 to under $2,500,000 | +2.90% | 6.79% |
| $2,500,000 and above | +2.40% | 6.29% |
Schwab also offers a discount of 0.25% to 1.00% for clients with $250,000 or more in qualifying assets, with the full 1.00% reserved for those holding $10 million or more. Lines start at $100,000, and retirement assets cannot be pledged. The same page calls the product "a demand line of credit," which means the bank can ask for its money back.
Look at the pattern in that table. The bigger your portfolio, the cheaper your money. A client at the top tier with the full discount pays about three points less than a client at the bottom tier with none. At billionaire scale, private banks negotiate their own terms, which are not published. What would you do differently if your borrowing cost dropped every time your net worth rose?
How billionaires actually use it
This step shows up in public filings. Oracle's 2025 proxy statement says that as of September 19, 2025, co-founder Larry Ellison "had pledged 346,000,000 shares of Oracle common stock as collateral to secure certain personal indebtedness." Oracle's board added that the pledged shares "secure personal term loans only used to fund outside personal business ventures" and that none are pledged for margin accounts (Oracle DEF 14A, 2025). Oracle's pledging policy bars its directors and executive officers from pledging company stock, with two written exceptions: pledges already in place at companies Oracle acquires, and Ellison.
ProPublica's 2021 investigation reported that Tesla had disclosed the year before that Elon Musk "pledged some 92 million shares" as collateral for personal loans, and stated the general rule plainly: "Banks typically require collateral, but the wealthy have plenty of that" (ProPublica, 2021).
Note what these filings do and do not show. They prove the borrowing. They do not show what each person spent the money on, or what rate they pay. Anyone who tells you a specific billionaire "lives entirely on loans" is guessing beyond the records.
Step three: the step-up in basis at death
The last step is what turns a tax delay into a tax erasure. Your "basis" in an asset is roughly what you paid for it. When you sell, your taxable gain is the sale price minus your basis.
When someone dies, the basis of what they leave resets. The tax code says the basis of property acquired from a decedent is "the fair market value of the property at the date of the decedent's death" (26 U.S.C. § 1014). The IRS repeats this in its guide to basis: inherited property generally takes "the FMV of the property at the date of the individual's death," or the value on an alternate valuation date if the estate elects it (IRS Publication 551).
In plain words, every dollar of gain built up over the owner's life is never taxed as income. The heirs start fresh at today's price. If they sell the next week, there is little or no gain to report.
A gift works differently. If you give away an asset that has grown while you are alive, the person receiving it generally takes "the donor's adjusted basis," per the same IRS publication. That is why wealthy families tend to hold appreciated stock until death and give away cash or other assets during life. Congress also closed one obvious trick: if you gift appreciated property to someone who dies within a year and it passes back to you or your spouse, you keep your old basis under section 1014(e).
How the loan gets repaid
After death, the estate pays the debts. Since the heirs' basis has just been stepped up to market value, the estate can sell some of the pledged shares to clear the loan with almost no capital gains tax. The family pays off decades of borrowing with assets whose growth was never taxed as income.
Where the estate tax comes in
The estate tax still applies alongside the step-up. For people who die in 2026, the IRS says estates have "a basic exclusion amount of $15,000,000" (IRS, October 2025). That figure comes from the One Big Beautiful Bill Act, which law firm Pierce Atwood describes as raising the exemption to "$15 million per individual" with "annual inflation adjustments thereafter," and no sunset date; the firm also notes that "the step-up in basis at death remains intact" (Pierce Atwood). Pierce Atwood puts the figure at $30 million for a married couple.
Above the exemption, the top estate tax rate is 40 percent (26 U.S.C. § 2001). Very large estates use trusts, charitable giving and family structures to shrink that bill, which is a large part of why the richest families run a family office. Debt also helps here: the tax code lets an estate deduct "claims against the estate" and other debts before the estate tax is figured (26 U.S.C. § 2053).
For almost everyone reading this, though, the $15 million exemption means no estate tax at all. The step-up is the part that matters to ordinary families, and it applies to a $200,000 brokerage account the same way it applies to a $200 billion one.
The math with real numbers
Here is one worked example, using the 2026 rates above. Say you bought shares years ago for $100,000 and they are now worth $1,000,000. You want $200,000 in cash.
| Sell shares | Borrow against shares |
|---|
| Shares sold or pledged | $200,000 sold | $200,000 borrowed against them |
| Gain realized | $180,000 (90% of each dollar sold is gain) | $0 |
| Federal tax at 23.8% | About $42,840 | $0 |
| Cash you keep now | About $157,160 | $200,000 |
| Ongoing cost | None | Interest at 7.29% APR (Schwab tier for $500K to $1M of collateral): about $14,580 a year |
| Shares still owned | $800,000 worth | $1,000,000 worth, with a $200,000 loan against them |
| If you die holding | Heirs get the remaining shares at stepped-up basis | Heirs get shares at stepped-up basis; estate repays the loan |
Run that forward and the trade-off is clear. Three years of interest at that rate costs about $43,740, roughly the tax you avoided. After that, the interest you have paid adds up to more than the one-time tax would have been. Borrowing wins only if your shares grow faster than the interest, and only if you hold long enough that the step-up actually happens.
That is why the strategy suits the very rich so well. Their borrowing rates sit at the cheap end of the table or below it, their gains are huge relative to their basis, and they can afford to wait decades. For someone with a $300,000 portfolio paying 8% on a small line, the arithmetic often points to just paying the tax.
What does your own version of this table look like? If you have never checked your basis on an old investment, that is a useful number to find.
What ProPublica found in the IRS files
The strongest public evidence on how much the very rich pay comes from that leaked IRS data. ProPublica compared taxes paid with the growth in each person's wealth, a measure it called the "true tax rate."
- The 25 richest Americans saw their worth rise "a collective $401 billion from 2014 to 2018" while paying "a total of $13.6 billion in federal income taxes in those five years," which ProPublica calculated "amounts to a true tax rate of only 3.4%."
- For Warren Buffett, the reported figure was "$23.7M (0.10% of wealth)."
- For Jeff Bezos, it was "$973M (0.98% of wealth)."
All three figures come from the ProPublica article of June 8, 2021. Two cautions keep this honest. First, the "true tax rate" measures tax against wealth growth, which the tax code does not tax, so it is a different number from the rate on someone's tax return. Second, unrealized growth is the main driver of those low rates; borrowing is one tool that lets people live off that growth without selling, alongside salary, dividends and occasional large sales.
Does a 3.4% figure make you angry, curious, or both? Whichever it is, the mechanism behind it is the same one sitting in your own brokerage account, at a smaller scale.
The risks: margin calls, rates and forced sales
Borrowing against stocks feels free until the market drops. FINRA spells out what happens: if the value of your collateral falls, the firm can issue a maintenance call, and "If you can't meet the requirements, the firm can sell your securities and keep the cash to satisfy the maintenance call." It adds that lenders "often can make these decisions without giving you any notice" (FINRA).
A forced sale happens when prices are low. It realizes the very gain you were trying to avoid and ends the plan of holding until death. You lose the shares, owe the tax, and the market may recover a month later without you. How would your plan survive a 30% drop in the week your loan was largest?
Other risks to price in:
- Variable rates. Schwab's lines float with SOFR, and the bank reserves the right to change "the daily Secured Overnight Financing Rate ("SOFR"), interest rate spread, or post-demand spread" after the line is open (Schwab). A plan built on 5% money looks different at 9%.
- Demand lines. The lender can ask for repayment, so this is short-leash money even if you plan to hold it for decades.
- Concentration. Ellison's pledged collateral, and Musk's as reported in 2021, is stock in one company. If that stock falls hard, the cushion shrinks quickly. A broad index fund is steadier collateral, but no portfolio is immune to a crash.
- Law changes. The step-up and the $15 million exemption are law today, and a future Congress can change either one.
If this reminds you of margin trading, it should. The mechanics rhyme, and our guide to leveraged trading covers how quickly borrowed money cuts the other way.
What to skip from the buy borrow die playbook
Some versions of this idea circulate online in a form that does not hold up. Skip these:
- Borrowing to fund lifestyle on a small portfolio. With a few hundred thousand dollars, retail rates near the top of the Schwab table, and decades of interest ahead, the numbers usually favour paying the tax.
- Borrowing against stocks to buy more stocks. FINRA is explicit that SBLOC money cannot be used to buy securities. Using a different loan to do the same thing is just leverage.
- Using a HELOC as your "borrow" step. A home equity line is the closest version most people can get, and it is the riskiest. The CFPB warns that "If you fall behind or can't repay the loan on schedule, you could lose your home," and that HELOC rates usually vary, "so your payments may change from month to month" (CFPB). A billionaire who gets a margin call loses some shares. You could lose the roof.
- Assuming the estate tax will hit you. At $15 million per person in 2026, it will not reach most families. Do not pay for complex trusts you have no use for.
- Gifting appreciated stock to your kids "to save tax." Under IRS rules they take your old basis. Holding it and letting them inherit usually leaves them a smaller tax bill.
This is general information about how the tax rules work, and it is not tax or legal advice. If you are thinking about pledging assets or planning an estate, talk to a fee-only financial planner or tax professional who can see your full picture.
The normal-income version of buy, borrow, die
You can borrow the useful parts of this strategy without the loan. The core idea is to let assets compound untaxed and avoid selling winners without a reason. Here is how that looks on a regular salary:
| Billionaire move | What it costs them | Copy-it version | Rough cost to you |
|---|
| Hold founder stock for decades | Concentration risk | Buy and hold a low-cost broad index fund (see our index investing guide) | Fund fees, often a fraction of a percent a year |
| Borrow instead of selling | About 6.3% to 8.3% APR at Schwab's posted October 2026 tiers, before discounts | Keep an emergency fund so you never sell in a slump | Free, just slower |
| Step-up in basis at death | Nothing; it is the law | Hold long-term taxable investments you may pass on, and keep basis records | Free |
| Shelter growth from tax | Trusts and lawyers | A Roth IRA, where "qualified distributions are tax-free" (IRS) | Up to $7,500 a year in 2026 contributions, $1,100 more if 50 or older (IRS) |
| Tax-free sale of a home | Not needed | The home sale exclusion: up to $250,000 of gain single or $500,000 joint if you owned and lived in it 2 of the last 5 years (IRS Topic 701) | Free |
The Roth IRA is the closest thing a normal earner has to the billionaire result. You pay tax on the money going in, and if you follow the rules, the growth comes out tax-free. The IRS also says "You can leave amounts in your Roth IRA as long as you live," so it can compound for decades. The Roth phase-out for single filers in 2026 runs from $153,000 to $168,000 of income (IRS).
Holding matters too. Long holding periods in a plain fund are the "buy" and "die" steps for regular people, and you can skip the "borrow" step entirely. When did you last sell something you meant to keep?
If you have just inherited stock or a house, your basis has probably been stepped up already. Our guide on what to do with inheritance money walks through the next steps.
Assets come before the borrowing
It needs assets first, and assets come from income you did not spend. That makes the real first step for most people unglamorous: earn more than you spend and invest the gap. As our post on why salary alone won't make you rich argues, ownership is where the compounding happens.
The wealthy families who use these tools for generations also behave in particular ways around money, which we look at in old money vs new money and in the habits of rich people. How many of those habits are about spending less than you could?
Your buy-and-hold checklist this week
- Find your basis. Log into any taxable brokerage account and look up the cost basis of your biggest holdings. Note it where your family can find it.
- Check your Roth room. If you are eligible and have not contributed for 2026, see how close you can get to the $7,500 limit before the deadline.
- Pause before selling a winner. If you have held it under a year, check how close you are to long-term rates.
- Build the buffer. An emergency fund is the normal person's line of credit. It keeps you from selling in a crash and from borrowing against your home.
- Leave the HELOC alone unless you have a clear repayment plan and a use that earns more than it costs.
Which of these five could you do in the next 20 minutes?