Buy, Borrow, Die: Borrowing Against Appreciated Assets and the Stepped-Up Basis at Death
In Short
Buy, Borrow, Die is a nickname for holding appreciated assets for life, borrowing against them for cash instead of selling, and leaving them to heirs, whose basis generally resets to fair market value at death under IRC §1014. It is commonly discussed by wealthy investors, business owners and real estate holders with large unrealized gains.
TL;DR
- Selling an appreciated asset triggers capital gains tax; borrowing against it generally does not, because loan proceeds are not income [1].
- Property inherited from a decedent generally takes a basis equal to its fair market value at the date of death, so gain built up during life is not taxed to the heirs [1].
- Loans carry interest, can be called, and securities-backed lines can force sales when markets fall [3].
- Large estates may still owe federal estate tax; for 2026 the basic exclusion amount is $15,000,000 per person [2].
Quick Facts
| Legal Reference | IRC §1014 |
|---|---|
| Complexity | High |
| Audit Risk | Low |
| Setup Cost | Moderate — loan fees, interest and estate-planning costs |
| Time to Implement | Decades — the strategy runs for the owner's lifetime |
| Illustrative Example | Illustrative example, not a projection. An investor holds stock bought for $1,000,000 that is now worth $5,000,000. Instead of selling, the investor draws $500,000 over several years on a securities-backed line of credit and pays the interest. At death the stock passes to an heir with a basis equal to its value on that date, and the estate repays the line. The $4,000,000 of gain during the investor's life is never taxed as income, but the interest paid, the market risk taken and any estate tax are real costs. Actual results depend on the facts, interest rates and the market. |
Key Numbers & Limits
| Item | Limit or Rule | Notes |
|---|---|---|
| Basis of Inherited Property | Fair market value at the date of death | General rule of IRC §1014(a)(1), with exceptions [1]. |
| Basic Exclusion Amount (2025) | $13,990,000 per person | Estate and gift tax [2]. |
| Basic Exclusion Amount (2026) | $15,000,000 per person | Set by P.L. 119-21; indexed for inflation after 2026 [2]. |
| Annual Gift Exclusion (2025 and 2026) | $19,000 per recipient | [2] |
| Securities-Based Line of Credit | Often 50% to 95% of the pledged portfolio's value | Varies by lender and the securities pledged [3]. |
What Is the Buy, Borrow, Die Strategy?
Buy, Borrow, Die is a nickname, not a legal term, for a three-part pattern: buy assets that grow in value, borrow against them instead of selling, and hold them until death [1]. It relies on two features of the tax law. First, a gain is generally taxed only when an asset is sold or exchanged, and borrowed money is not income because it has to be paid back. Second, under IRC §1014 the basis of property acquired from a decedent is generally its fair market value at the date of death [1].
That second rule is often called the stepped-up basis. If a parent bought stock for $100 and it is worth $1,000 at death, the heir's basis is generally $1,000. If the heir sells for $1,000, there is no gain to tax. The $900 of growth during the parent's life is never taxed as income. Gifts made during life work differently: a person who receives a gift generally keeps the giver's old basis under IRC §1015 [6].
The borrowing part is how the owner gets cash to live on without selling. Common tools are securities-backed lines of credit, margin loans, cash-out refinancing of real estate and loans secured by a business interest. FINRA describes securities-backed lines as revolving credit that uses an investment account as collateral, often with interest-only payments and rates that move with market benchmarks [3].
Estate tax is a separate question. The stepped-up basis applies whether or not an estate owes estate tax. For 2026 the basic exclusion amount is $15,000,000 per person, set by the One Big Beautiful Bill Act (Public Law 119-21) and indexed for inflation after 2026; estates above the exclusion can owe federal estate tax [2].
How Does the Buy, Borrow, Die Strategy Work?
- The owner holds appreciated assets — commonly stocks, real estate or a business interest — and does not sell them [1].
- When cash is needed, the owner borrows against the assets, for example through a securities-backed line of credit or a cash-out refinance, and pays interest from income or further borrowing [3].
- The interest may or may not be deductible: investment interest is limited to net investment income, and personal interest is generally not deductible for individuals [4].
- At death, the assets pass to heirs or a trust, and their basis generally becomes the fair market value at the date of death [1].
- The estate or the heirs repay the loans, often by selling some assets soon after death, when little or no gain remains because of the new basis [1].
- If the estate is larger than the basic exclusion amount, federal estate tax may be due, and an estate tax return (Form 706) may be required [2].
The Good: What Are the Benefits of the Buy, Borrow, Die Strategy?
- Unrealized gain on assets held until death is generally not taxed as income to anyone, because the heirs' basis resets to fair market value [1].
- Borrowing provides cash without a taxable sale, since loan proceeds are not income.
- The owner keeps the assets, so dividends, rents and future growth stay with the owner.
- The 2026 basic exclusion amount of $15,000,000 per person means many estates owe no federal estate tax [2].
The Bad: What Are the Drawbacks of the Buy, Borrow, Die Strategy?
- Interest is a real, ongoing cost, and variable rates can rise; interest can build faster than the borrowed cash earns [3].
- Interest on money borrowed for personal spending is generally not deductible, and investment interest is limited to net investment income [4].
- Securities-backed lines usually cannot be used to buy more securities, and moving accounts to another firm can require repaying the loan [3].
- The stepped-up basis has exceptions: income in respect of a decedent, such as traditional IRA balances, does not get a new basis, and appreciated property given to a person who dies within one year and passes back to the giver keeps the old basis [1].
- The plan depends on today's law. Basis and estate tax rules have been the subject of repeated proposals in Congress.
The Ugly: What Are the Serious Risks of the Buy, Borrow, Die Strategy?
- A market drop can trigger a maintenance call. If the borrower cannot add collateral or repay quickly, the lender can sell the pledged securities, which can create the very capital gains tax the plan was meant to avoid [3].
- Lenders can generally call a securities-backed line at any time, so the borrower may have to repay on the lender's schedule, not their own [3].
- Leverage magnifies losses: a borrower can lose the pledged assets and still owe the loan balance if the collateral falls far enough.
- Debt that grows faster than the assets can leave heirs with less than if the owner had simply sold and paid the tax.
Who Uses the Buy, Borrow, Die Strategy?
Who It's Commonly Used By
- Investors with large unrealized gains in stocks or funds who need cash flow and plan to hold the assets for life [1][3].
- Real estate owners who refinance appreciated properties instead of selling them.
- Founders and business owners whose wealth is mostly in one appreciated company.
- Families working with estate planners on how assets will pass at death [2].
Who It's Generally Not Suited For
- People who cannot comfortably cover interest and a sudden collateral call from other resources [3].
- Investors whose assets have little unrealized gain, where the basis step-up adds little.
- Holders of retirement accounts and other income in respect of a decedent, which do not receive a new basis [1].
- Anyone who expects to need to sell the assets during life anyway.
What Are the Key Rules & Requirements for the Buy, Borrow, Die Strategy?
- Property acquired from a decedent generally takes a basis equal to its fair market value at the date of death [1].
- The new basis does not apply to income in respect of a decedent [1].
- Appreciated property given to a decedent within one year of death that passes back to the giver or the giver's spouse keeps the decedent's old basis [1].
- Property received as a gift during life generally keeps the giver's basis [6].
- For 2026 the basic exclusion amount for estate and gift tax is $15,000,000 per person, adjusted for inflation after 2026 [2][5].
- Investment interest is deductible only up to net investment income, with a carryforward; personal interest is generally not deductible [4].
What Are Common Mistakes & Red Flags With the Buy, Borrow, Die Strategy?
- Presenting the strategy as tax-free spending without counting interest, fees and market risk.
- Borrowing a high share of a portfolio's value, leaving little room before a maintenance call [3].
- Pledging a single concentrated stock position as collateral.
- Assuming retirement accounts, annuities or deferred compensation will get a stepped-up basis [1].
- Deducting interest on money used for personal spending [4].
- Ignoring estate tax and liquidity needs for very large estates [2].
Frequently Asked Questions
Is Buy, Borrow, Die Legal?
Yes. Borrowing against assets is legal, and the stepped-up basis for inherited property is part of the Internal Revenue Code at section 1014 [1]. The risks are financial — interest, leverage and forced sales — rather than legal [3].
What Is a Stepped-Up Basis?
Basis is the amount used to measure gain or loss when an asset is sold. Under IRC §1014, the basis of property acquired from a decedent is generally its fair market value at the date of death, so growth that happened during the owner's life is not taxed when the heir sells [1].
Does the Stepped-Up Basis Avoid Estate Tax?
No. The basis rule is an income tax rule. Estate tax depends on the size of the estate; for 2026 the basic exclusion amount is $15,000,000 per person, and estates above it can owe federal estate tax [2].
What Happens if the Market Falls While a Securities-Backed Loan Is Outstanding?
The lender can issue a maintenance call asking for more collateral or a repayment, often within days. If the call is not met, the lender can sell the pledged securities, which can create capital gains tax for the borrower [3].
Sources
- 26 U.S. Code §1014 — Basis of Property Acquired From a Decedent — Legal Information Institute, Cornell Law School
- What's New — Estate and Gift Tax — Internal Revenue Service
- Securities-Backed Lines of Credit — FINRA
- 26 U.S. Code §163 — Interest — Legal Information Institute, Cornell Law School
- Rev. Proc. 2025-32 (2026 Inflation Adjustments) — Internal Revenue Service
- 26 U.S. Code §1015 — Basis of Property Acquired by Gifts and Transfers in Trust — Legal Information Institute, Cornell Law School
Primary sources only: the Internal Revenue Code, Treasury regulations and official agency guidance. Read how Zentavos researches these reports.