Buy Borrow Die Strategy Definition: What It Is and How It Actually Works

You buy an appreciating asset, typically public equities, private company stock, or real estate, and hold it without selling. Because holding is not a taxable event, the unrealized gain compounds indefinitely. When you need liquidity, you pledge the asset as collateral and borrow against it through a securities-backed line of credit or a Lombard facility. The loan proceeds are not income under U.S. tax law, so no income tax is owed. At death, the asset passes to heirs with a stepped-up cost basis equal to fair market value on the date of death, which eliminates the embedded capital gain entirely, leaving heirs free to sell without a tax bill.

Selling a position with a large embedded gain triggers federal capital gains tax of up to 23.8 percent (20 percent long-term rate plus 3.8 percent net investment income tax) before any state tax. Borrowing against the same position costs the interest rate on the loan, typically SOFR plus 0.5 to 1.5 percent at private banks for large portfolios, which is far below the tax cost in most cases. The asset continues to appreciate while pledged, so the borrower keeps the upside. As long as the after-tax return on the borrowed capital exceeds the loan interest rate, the strategy produces a net economic gain that a sale never could. The specific structure of that loan matters significantly, and the comparison between a Lombard facility and an SBLOC determines your rate, flexibility, and margin-call exposure.

Section 1014 of the Internal Revenue Code resets the cost basis of inherited assets to fair market value at the decedent's date of death. A share bought at $10 and worth $1,000 at death transfers to heirs with a $1,000 basis, not a $10 basis. The $990 of gain that accrued over a lifetime is never taxed. This is the exit mechanism that closes the loop: borrow during life to avoid realizing gains, then let death eliminate those gains permanently. The estate may still owe federal estate tax above the exemption threshold, currently around $13.6 million per individual as of 2024, but that is a separate calculation from the capital gains tax that stepped-up basis eliminates.

Publicly traded securities work best for the borrow step because major custodians and private banks will lend 50 to 70 percent of a diversified portfolio at competitive rates with same-week funding. Concentrated single-stock positions attract lower advance rates, often 20 to 50 percent depending on liquidity and volatility, and some custodians restrict lending against restricted or insider shares. Real estate works for the die step but borrowing against it uses a mortgage or HELOC rather than a Lombard facility, and those carry different rate structures and qualification requirements. Private company equity is the most powerful for long-term compounding but creates lender reluctance until liquidity events are near. The most efficient overall vehicle is a diversified portfolio of liquid public securities held in a brokerage account at a private bank that offers pledged asset lines.

The strategy becomes meaningful at net worths above roughly $5 million in investable assets, because below that level the loan minimums at private banks, typically $1 to $2 million, and the cost of maintaining relevant estate planning structures start to erode the benefit. At $10 million and above, the math is compelling and most large custodians will offer a pledged asset line without requiring a full private banking relationship. At $50 million and above, the strategy often runs through a family office structure that layers dynasty trusts, grantor retained annuity trusts, and cross-collateralized borrowing facilities to extend the benefit across multiple generations. The buy borrow die strategy is not a loophole in the colloquial sense. It operates exactly as Congress designed Section 1014, and it has survived every serious legislative challenge to date.

The primary threat to the strategy is elimination or carve-out of the stepped-up basis rule under Section 1014. The Biden administration's 2021 budget proposal included a deemed-realization rule at death that would have triggered capital gains tax on unrealized appreciation in excess of $1 million, but it did not pass. A secondary risk is mark-to-market taxation on unrealized gains above a wealth threshold, proposed at various points as a billionaire minimum income tax. Neither has become law as of mid-2025. Practitioners hedge against future legislative change by structuring assets inside irrevocable trusts that can access alternative deferral mechanisms if step-up is ever modified, but the step-up itself remains intact today.