How Billionaires Pay $0 in Taxes: The Buy-Borrow-Die Strategy

💰 The Billion-Dollar Tax Loophole

What do Elon Musk, Jeff Bezos, and Mark Zuckerberg have in common besides being billionaires? They've mastered a completely legal strategy that allows them to access wealth while paying virtually zero income tax. Even better, they can pass this tax-free income stream directly to their children.

Today, we're diving deep into this powerful wealth preservation method known as Buy-Borrow-Die (BBD)—a strategy that has kept the ultra-wealthy tax bills near zero for generations.

🎯 The 3 Steps of Buy-Borrow-Die

Step 1: Buy Appreciating Assets (Buy)

The first step is straightforward: purchase assets that increase in value over time. For most people, this means stocks or real estate. If you have significant capital, it could include collectibles like fine art. But for the average investor, stocks and real estate remain the most accessible options.

The critical principle here is to never sell. Let's run through an example: imagine you invest $100,000 in an S&P 500 index fund. With an average annual return of 8%, after 30 years, that $100,000 grows to approximately $1 million.

The key is that by holding and never selling, you trigger zero taxable events. In the United States, you don't owe capital gains tax on appreciated assets until you actually sell them. Your stock portfolio can double, triple, or increase tenfold—and as long as you hold it, the IRS doesn't see a penny.

Step 2: Borrow Against Your Assets (Borrow)

"But if I never sell, how do I access my money?" Great question. This is where step two comes in: borrow against your assets.

Most people would sell a portion of their appreciated stock, pay capital gains tax, and use the remaining cash. The wealthy take a different approach—they use their entire portfolio as collateral for a loan.

For example, if your portfolio has grown to $200,000, you could take out a $50,000 loan using your stocks as collateral. Here's the magic: loans aren't taxable income. The IRS doesn't consider borrowed money as income because technically, you'll have to pay it back. You walk away with $50,000 to spend, tax-free.

📊 SBLOC: Securities-Backed Lines of Credit

This type of loan is called an SBLOC (Securities-Backed Line of Credit) or a Pledged Asset Line (PAL).

Compare typical personal loan rates—often in double digits—with SBLOC rates around 5%. Additionally, SBLOCs don't require credit score checks, and your borrowing capacity scales with your portfolio size. The more collateral you have, the more you can borrow.

💡 How Do They Pay the Interest?

"Okay, but what about the interest?" Absolutely—there is interest. But here's where the strategy becomes brilliant.

Wealthy individuals think in terms of millions or tens of millions, not thousands. Let's say you have a $20 million portfolio and take out a $10 million loan (50% loan-to-value ratio). At 5.11% interest, you'd owe approximately $511,000 per year.

But what if the stock market goes up 25% that year (like it did in 2024)? Your $20 million portfolio becomes $25 million. Now, 50% of your portfolio is $12.5 million.

Here's the trick: You refinance your original $10 million loan into a $12.5 million loan. The difference—$2.5 million—easily covers your $511,000 interest payment. Essentially, your portfolio's appreciation paid your interest, not money from your pocket.

Of course, there are risks. If your assets depreciate, you could face a margin call—a demand for additional collateral—or forced liquidation. But in a generally rising market, this strategy is remarkably effective.

Step 3: Die and Pass It On (Die)

The final step is perhaps the most magical: the stepped-up cost basis.

Under U.S. tax law, when you inherit assets, their cost basis resets to the market value at the time of the original owner's death. Here's an example:

• You purchased stock for $10 million that's now worth $50 million
• If you gift it while alive, your child would owe capital gains tax on $40 million when they sell
• If they inherit it after your death, the cost basis resets to $50 million
• They can sell immediately and owe zero capital gains tax

This is how generational wealth truly compounds. Your children receive assets with a clean slate and can restart the Buy-Borrow-Die cycle.

🏠 Can Regular People Use This?

While this strategy requires significant wealth to execute at scale, the principles are accessible to anyone.

The most practical application for most people is home equity. For many, a home is their largest asset. You can access that value through a Home Equity Line of Credit (HELOC) or cash-out refinance without triggering capital gains. While interest rates may not be as favorable as SBLOCs, the principle remains the same: use appreciating assets as collateral rather than selling them.

The key takeaway: hold appreciating assets, leverage them when needed, and minimize tax liability wherever possible.

✅ Key Takeaways

1. Buy: Purchase appreciating assets (stocks, real estate) and never sell
2. Borrow: Use assets as collateral for loans to access cash tax-free
3. Die: Pass assets to heirs with a stepped-up cost basis, eliminating capital gains

This isn't a strategy for everyday expenses—it's for significant purchases or wealth preservation. But understanding the principles empowers you to minimize taxes and maximize the efficiency of your assets.

Wealth building and preservation: it's not just about earning more—it's about keeping more.