How Billionaires Avoid Capital Gains Tax — Borrow, Don't Sell

How billionaires avoid capital gains tax by borrowing against appreciated stocks, real estate or founder shares — a legal tactic at most brokerages, explained.

Billionaires often access millions of dollars without triggering a capital gains tax bill by using a simple legal principle: don’t sell, borrow. Because U.S. tax law generally taxes gains only when an asset is sold (a “realization” event), loans taken against appreciated holdings aren’t treated as taxable income. That rule, long embedded in the Internal Revenue Code, enables wealthy investors to spend portfolio gains while deferring capital gains tax.

The mechanism is straightforward and widely available. Major brokerages and private banks offer securities-based lending or margin loans that let you borrow against appreciated stocks, founder shares, or other marketable securities. For real estate, homeowners and investors can use home equity lines or portfolio loans to access value without a sale. In each case, the lender provides cash secured by the asset; because the transaction is a loan, it isn’t a taxable sale.

This approach has clear benefits. Borrowing preserves your low-cost-basis position and defers capital gains tax until you decide to sell. It can also be faster and more flexible than liquidating positions, which might trigger large tax bills or market timing risks. That’s why it’s a common strategy among the ultra-rich—and potentially available to everyday investors who hold appreciated assets.

However, there are important trade-offs and risks. Loans carry interest and fees, and margin or securities-based lending can involve margin calls or forced sales if markets decline. Loan terms vary—some are recourse loans that could put other assets at risk. For founders, restrictions on stock transfers or lockups may limit borrowing options. Estate and gift tax rules also affect long-term planning, so deferring gains isn’t a cure-all.

If you’re considering this tax strategy, weigh the cost of borrowing against expected tax savings, market risk, and liquidity needs. Work with a trusted tax advisor and financial institution to understand loan terms, collateral rules, and the potential impact on your overall financial plan. Legally accessing portfolio value without immediate capital gains tax is possible—and increasingly common—but it should be used thoughtfully within a broader tax and investment strategy.

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