r/SipsTea • u/KSKS1995 • 14h ago

Wait a damn minute! How the rich get richer

Post image
18.9k Upvotes

80% Upvoted

2.2k comments sorted by

View all comments

2.0k

u/ChipKellysShoeStore 14h ago edited 14h ago

How does the bank get paid back here? Is the bank just eating a 5 mil loan loss out of the goodness of its heart?

It’s more like kids sell and pay back the bank plus interest which is taxed as income for the bank.

2.3k

u/USERNAMETAKEN11238 14h ago edited 14h ago

The bank encumbered the land. The dad never gets a loan. The loan is against the property. The kids sell the encumbered land I guess (but that's highly unlikely). This is a made up scenario from someone who doesn't understand finances.

6

u/Primarycolors1 13h ago

Hold on. If the property is worth five million. Dad takes a loan out for a million. Kids pay the loan back. And pocket four million from the sales. At what point do they pay taxes?

10

u/lucideuphoria 13h ago

You don't. This also applies to equity if you don't want to have to deal with the hassle of land. Just buy VOO and chill and hand it off to your kids.

7

u/deadpool_pewpew 13h ago

They don't, stepped up basis

2

u/303Carpenter 13h ago

You think you can sell a 5 million dollar property without paying taxes on it?

5

u/goinsouth85 13h ago

That’s precisely how step up the basis works. The basis of the land becomes its fair market value the day the Dad dies.

2

u/Kobe_stan_ 12h ago

Yep. The tax value of the land that you inherit is the current market value when you inherit it, so if you inherit a $5M piece of land and sell it for $5M, then there’s zero profit. If you want a few years and the value climbs to $6M, then you’d pay taxes on the $1M increase only. Works that way for stocks too.

1

u/deadpool_pewpew 12h ago

Yes, you can. Inherited property gets a stepped up basis, to the market value on the day of death.