How rich people are using cheap loans to cash out without taking a big tax hit
- Wealthy people can use their stock portfolios to tap cheap
loansand avoid the capital-gains tax.
- A stock-market rally and low interest rates turbocharged borrowing among America's wealthy.
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Wealthy people can use their stock portfolios or other assets to tap cheap loans and avoid a capital-gains-tax hit.
Portfolio-based lending is not new, but the pandemic's market rally and low interest rates turbocharged borrowing among America's wealthy. A big use of these kinds of loans right now is all-cash offers on
Securities-based lines of credit can be taken out only against nonretirement assets and typically have a higher minimum than margin loans, which, unlike SBLOCs, can be used to buy stock. Larger lines of credit also typically incur lower interest rates.
Private-bank clients are also taking loans out against their fine art, yachts, jets, and even stakes in sports team. Whether they use the proceeds to expand their collections or invest in private equity is up to them. A big plus is that the borrowers get to keep enjoying their art, jets, and yachts, while pumping money into other investments. It's also cheaper than selling stock and incurring capital-gains taxes, which can total nearly 40% for top earners in high-tax states like California.
Here's a look at the strategies rich people are using:
Securities-based lending has been turbocharged by low interest rates and a scorching housing market. For wealthy parents, these loans are a way to pass on their
Banks are targeting baby boomers looking to help their millennial children buy their first homes.
Private-bank clients can borrow against art, yachts, and jets to buy more luxuries or invest. Banks keep a watchful eye on their collateral with yearly inspections and maintenance schedules.
How banks are benefiting:
- Goldman Sachs expects its lending business to mass affluent and RIA clients to hit $10 billion this year as the wealthy take out loans to cover taxes and all-cash offers
- Wealthy execs are taking out loans to pay taxes on stock market windfalls — and it's been a boost to Morgan Stanley's lending business
- The truth about all-cash buyers: Goldman Sachs is lending out billions so its rich clients can swoop in on real estate
- pi Ventures plans to invest in 25 young startups with its latest $75 million fund
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