Borrowing Against Appreciated Stock to Avoid Capital Gains Tax
A 78-year-old who needs $150,000 could borrow against a brokerage account instead of selling stock held since the 1990s, avoiding an immediate tax bill. The strategy relies on loan proceeds not counting as taxable income and on IRC Section 1014 resetting the stock’s basis at death. Interest costs and forced sales during a market decline are key risks that could create the taxable event the plan seeks to avoid.
The plan uses two tax features. A loan is not income because repayment is owed. At death, IRC Section 1014 generally gives estate property a basis equal to date-of-death value, so prior appreciation may escape capital gains tax; the estate can repay the loan by selling shares with that reset basis. For 2026, the basic estate exclusion is $15 million.
In the sale alternative, a high-income couple on Medicare could owe about $30,549 federal tax on roughly $162,494 gain, plus about $10,414 in higher Medicare premiums. A securities-backed line typically has variable interest tied to a benchmark, and a market decline can force share sales.
This strategy may mainly benefit wealthy households with large unrealized gains and access to securities-backed credit. It could widen after-tax differences between those who can borrow and those who must sell to raise cash. Older retirees and heirs may be affected through estate planning, while lenders and advisors could gain business. Risks from interest and forced sales may fall on borrowers and their estates, potentially creating taxable sales during downturns.