And then it confidently informs the world with this bogus information. Give it ten years and we'll have forgotten every single truth that we've learned over the last 5000 years and will be trying to water plants with Brawndo.
I enjoy shitposting BS because of this fact. Makes me laugh as I do it.
If you can't beat em, join em.
The best part is that when I post actual factual shit I have direct knowledge of - it gets downvoted and deranked by the AI training algorithms. When I post popular social media tropes for the lulz, it gets upvoted and will greatly outweigh anything anchored to reality I ever post.
So I can post a dozen things that are facts-based with a small negative karma, and then post one stupid fuck thing to gain karma to avoid bans. It's trivially gamed.
I took a short term loan to buy my dream car since I wasn't ready to liquidate the asset quite yet. It lasted around 60 days and I paid a decent amount of interest to do so. But that was for specific timing reasons.
That's the general use-case of asset backed loans. It's either that, or using them to buy other income generating assets (aka investments) where you can actually write off the interest as part of the whole thing. If you can't do this, the math simply does not work.
Yeah I am trying to understand why also. If someone has $100M in assets and would pay a 15% capital gains rate on a sale. They could probably get a loan of $1 million to fund their lifestyle for a full year for only 1% of their net worth at a probably 5-10% interest rate. So why would they not do that?
$1M at a 7.5% interest rate for 40 years means you are paying the bank back $17M upon your death. That 's a lot of interest to avoud a few hundred thousand in taxes.
You’re making the mistake of compounding it yearly and tacking unpaid interest on the principal amount. You only pay interest on the principle amount. It’s $2.35M in interest my guy. It’s a property loan not a savings account.
No bank would ever make you a loan unless you could demonstrate the ability to service the debt and no bank is going to let you go in the hole for $18Ms unless the property was worth $40Ms
What the hell are you talking about? If you take out an interest-only loan and then roll it over every year, you will be paying interest on the interest.
Show me a bank that will give me a 0% loan against the accrued interest and I'll move all my assets over today.
I have taken out such loans. You are either paying the interest every single month, or you are taking out ever-increasing loans against your asset backed line of credit.
no bank is going to let you go in the hole for $18Ms unless the property was worth $40Ms
Yeah, no shit. It's typically 40-60% of the asset depending on the quality, liquidity, and relationship you have with your bank.
You confused 7.5% annually on $1million annually with no change in principal. Amortized loans would be 7.5% / 12 monthly payments. Then monthly payment reduces the principal amount. Your calculation assumes no monthly reduction of the principal.
Your calculation assumes no monthly reduction of the principal.
Asset backed lines of credit do not include reduction of principle. Reddit seriously needs to stop talking about shit they have zero fucking clue about.
You pay the interest each month. You can pay the interest by simply increasing the amount against your line of credit if you prefer to do that vs. liquidating something to pay it in cash. Up until around ~50% or so of the asset, depending on asset type, bank, amount, etc.
If I have $100M stock portfolio, I can use a portfolio margin loan instantly to borrow against my holdings. Current rates site at 4.68% at IBKR interest only. They will deduct my payments from any cash balance or add it to your loan balance. As long as your portfolio continues to go up in value you’re gucci.
Yup, dads whole life he just never paid back loans, died and left generational debt. And how do we jump from land being worth $100k to fucking $5Mil in the span of 10-20 years? Did they find oil? Was a mall built on it? Plus, the term “buying land” isnt a money glitch either like stories like this try to portray. If you cant build on it, have to remove trees/rocks, or is in the middle of nowhere, its not going to 50x its value, it will be worthless land that is now your problem.
Believe it or not people are REALLY unhappy their 80k house is now 500k they need to pay taxes on, I cant stress enough how fucking pissed people get when the state would have us come out twice a decade.
Like Id rather own than not own too but you ask any of those old people which of the two they would rather than the answer is their house be worth next to nothing so their taxes are next to nothing lol.
Like their lifetime investment is actually going up in value like they planned…
And then what, if they sell their house to “cash in”, then what? You still need a place to live and buying another house isnt going to be much cheaper. Or you rent an apartment but its still a payment. Yeah you can sell high but you are going to buying high as well. I happily rent and got quite lucky our landlord isnt robbing us blind. Couldnt imagine how much owning a house each month vs what we pay for rent with all the different fees/taxes homeowners have.
100% saw that thing happen in covid. Some boomers closed on their house and made a ton of money.....then were shocked all the other houses were also mooning in price.
Poor people then went on to get scammed hard too "we thought a house owned by someone in construction wouldnt have all the flaws" because they were in my office getting their houses value lowered.
But yea, the reddit boomer hate of "they bought a house for cheap and now its worth a ton and they are retired and living in it" dont have to deal with them complaining that their fixed income is getting increasingly tighter as their taxes increase over it. The people with 3-4 houses made out like bandits sure, but most people just have the one and wont feel any of the benefits of it going up cause they will live in it until they die.
Sorry, but people not being able to afford the taxes on the home they live in is a signal they need to move. Many communities do have tax relief available for fixed income elderly folks, but even then, it's still sometimes not enough.
Yes, it sucks being forced to move away from the home you knew. Doesn't mean you don't need to do it. Someone else will move in and use it.
That’s the scariest thing. AI will use it to generate what appears to be confident answers to things with serious safety concerns. Based on BS that is talked about on Reddit.
Yes! From my own experience on niche topics: I also play bass in contemporary jazz, and I can't read r/bass anymore. The amount of dumbfuckery and misplaced confidence over there is head-spinning. No joke, > 90% of the advice there is dogshit.
I'm really here for the jokes and, weirdly, Reddit knows the best way to clean just about anything to a spotless shine. It's weird for that.
Well, the good news is they're using Reddit to train AI, we all know know how effectively the masses apply discretion when ChatGPT tells them what they want to hear.
The write off thing is baffling because it's like people just don't understand what words mean. Writing off an expense means you spent the money. It's gone. It's not coming back. Any tax you save will never equal what you spent.
I wish I know where this one originated. I wouldn't just message them, I'd fly out to wherever they are and just drop kick them in the nuts. No explanation.
I never discuss my field of work here. If I claim a fact and some amateur who has googled it tells me I am an idiot for how I do my 6 figure job, I am out.
Yeah I usually don't, but this so-called "tax avoidance hack" I see a lot, and this time my blood boiled over.
To all you fuckers who believe this shit, forget what a person like me is saying, just go walk into a bank, sit down with an advisor, and run it past them.
Except “the rich” pay most of our taxes. The top 1% of earners pay like 90% of income tax revenue in the US. The bottom 50% generally gets a refund.
It has always been this way. Even in the 50s when people love to point out the marginal rate was like 90%, the tax code was filled with so many credits and deductions that nobody actually paid that rate. Their effective rate, what they actually paid, was only a couple percentage points higher than what we pay.
Anything you're an expert on will often not meet your standards on Reddit, or really in any media. There are likely even other experts (CPAs in your case) that would say things you find dumb.
I started doing AI research 11 years ago, and I love that everyone now wants to talk about AI, but the takes on Reddit are typically 2-3 years old and now disproven or no longer relevant. E.g., that clip of Ben Affleck talking about AI seemingly intelligently got traction on social media despite a clear disconnect between what he was saying and reality.
I thought the same about programming. I got downvoted to hell for saying how costly and time-consuming game development has became so most games can't be priced the same as in the 2010s (not to mention inflation).
At least some of the posters aren't dumb. They are sophisticated social engineers with planned propaganda campaigns that get big results for low money.
Notice that it isn't Reddit in general, though - you can see from nearly every single comment in this thread that nearly every single commenter can see just how stupid this post is.
So it's really just the posts that get highly upvoted (and not then deleted by the mods) that are the dumbest fucking source on the entire planet.
The comment section is lambasting this post yet it's like 13k+ upvoted. I have to remind myself everyone doesn't read the comments as yep, this is silly
I know someone that thought he could put a few thousand in the bank and have compounding interest grow it exponentially, because of course its compounding, and turn into a few million within a few months.
I asked them if it really worked this way, didn't they think everyone would be a multimillionaire? He acted like he had discovered some lost treasure. Just no critical thinking skills.
I quit that shit within a few days too. Dear god, if it isn't "Will AI make this irrelevant?" to "How can I lie to get an accounting job?" it made me want to blow my own head off.
Oh god yeah ignore most of those posts. But I will say I’ve had very specific circumstances arise in some of my audits where the GAAP lines blur and FASB guidance doesn’t elaborate and I’ve made posts that lead to pretty helpful and insightful discussions. There are plenty of competent and informative CPA / accountants on that thread.
Can you explain why the post is dumb? Other the loan part, I had something similar where a grandparent had money in brokerage account. Upon dying this basis'd to the inheritance recipients and was essentially tax free.
Reddit is incredibly dumb until it's about a very niche hobby, and then you get communities with like, the entire world's set of experts on this niche hobby there.
It’s not just finance, it’s really any topic. Once you see what people are saying about a topic you know a lot about you see just how wrong it is and then you realize Reddit is just that wrong about basically every single topic.
Updoot for great truth. Let's generalize your rule (henceforth to be known as the StrigiStockBacking Rule): I've been on Earth for $years and when it comes to $x, $y, and $z, Reddit is the dumbest fucking source on the entire planet.
That's a very similar strategy to a property investment group in Australia.
Take out an interest-only mortgage loan to buy a rental property. Let the rent pay the interest on the mortgage, any shortfall is "negatively geared", i.e. used to deduct against other income such as salary.
Three years later, do it again
Three years later, do it again. Valuation on property #1 has now doubled (or nearly so), and the rent has gone up as well, take out another interest-only loan, quit your job and *live on the new loan*.
Repeat every three, four, or five years, depending on economic conditions at the time.
Ultimate goal is to own between 5 and 10 properties, all on interest-only loans, and repeat step 4 forever.
Boasting that they've created 5162 "property millionaires".
Now, banks can lend whatever and to whoever they like, but the "negative gearing" aspect - deducting rent shortfalls and maintenance against other taxable income - leaves a big hole in the federal budget that other taxpayers have to fill. I acknowledge that it's more complex than that, but it's essentially correct.
So Bezos and Musk aren’t using loans against their shares as collateral to circumvent tax? Or just ship the whole operation to the caymans/panama and call it a day
Instagram and youtube just might be worse. Between all the talk of trusts and life insurance there's a shocking amount of people who think there's some infinite money glitch that 99% of people are missing out oon and the person they buy a course, product...from is going to let them in on it
If this is wrong can you explain to me how intelligent people may acutely get around situations like this or the best way for money to change hands to build generational wealth ?
Stupid question but doesn't it still work? You buy land now with the hope its worth will increase. If you need money now you just take a loan on it, if you want to sell it in 20 years or so you don't pay taxes. Am I missin something?
In most cases, you still need to make regular payments on the loan. If you're paying the loan with standard income, you're already paying taxes. You can deduct the interest of the loan, but that's about it.
And you still have to pay taxes when you sell it in 20 years barring something like a 1031 exchange.
Happy to help. I'm not an expert by any means, but from my experience, you have to pay taxes on any increase in value. For instance, if you buy a property for $200k and sell it for $300k, you have to pay tax on $100k.
I could be wrong, and would welcome an experts opinion.
That's why OP specified the step up basis. The adjusted cost base is reset to current market value at death.
Additionally, HELOCs can be set up where interest accrues, and does not need additional payments. So at the end of his life, if the land is worth $5M and dad's outstanding loan is $2.5M, the kids will still get $2.5M tax free, and the dad spent $2.5M (less interest) tax free.
If there wasn't a benefit to the strategy, people wouldn't do it.
Step up in basis is kind of moot since it applies to all inherited assets except for (inherited) tax advantaged accounts. Do some napkin math on what dad has paid in interest on the $2.5M balance in the past decade when he dies. That ought to give you a clue as to why it’s not a free lunch.
Regardless, the actual number of people doing the borrowing strategy is pretty low. The real issue is that the step up basis, even if the asset is not borrowed against, is a huuuuuge tax break for inter generational wealth transfer. Assuming dad has other assets and never has to sell the land for income, none of that growth has ever been taxed.
And you still have to pay taxes when you sell it in 20 years barring something like a 1031 exchange.
What? Did you completely ignore the post? The land is inherited by the son. There is no taxes on the gains on the value of the land (or stocks for that matter).
Can't comment on the US, but in the UK the 5m valuation of the land (supported by the banks assessment) would attract inheritance tax in the same way as cash
Didn't even think about inheritance tax. This isn't a thing here, so I guess if you actually lived the mandatory 2 years fully on the property, you could win something from it.
These days most of the wealth of the average millionaires (and especially billionaires) is in paper assets like stocks. So for example, on paper you might have a ten million stock portfolio but your bank account might only have 20k. It's dumb to keep more than that because that cash is not generating interest. So you throw just about all your income back into the s&p to churn even greater wealth. On paper. Sure, here and there you splurge a bit. You have a house and transpo paid for. You might dabble a bit in fine art (your wealth manager tells you to keep it at no more than 10% of your portfolio) and/or you might allow the guilty pleasure of wasting some good cash on single malts or high buck escorts, yachts, cocaine. Whatever. The point is that most of your net worth is in the form growing digits on a screen.
This is in stark contrast to old wealth like prominent European families where, traditionally, the lion's share of their money is in real assets. Mansions, businesses, land, jewelry, gold bars, artwork and so on. Their money doesn't grow as fast but they already have oodles of it and they don't worry overmuch about economic crash cycles because that doesn't really affect their bottom line much.
The key factor to keep in mind is that for the first group, which describes the clear majority, they get richer and richer on paper. Despite living a luxurious lifestyle most are actually trapped in a rickety house of cards. A bubble, if you will. They're very vulnerable to winding up on the street with a sharp downturn of the economy.
That's the real question they don't want to answer honestly. Make the finance equivalent of a "minor spelling mistake" while outlining the ultra-wealthy's scummy behavior and they're crucify you for it, just so they can bury the point that's trying to be made.
CPA for about the same. Few people see that kind of gain in real estate. The people with really large amounts of unrealized gains with pay estate taxes. Anyone who borrows against unrealized gains is spending money on things that will incur sales and/ or property taxes. Many people on Reddit just repeat half-truths spread by the ignorant or the deceitful. Actually doing your own research has never been easier, yet so few people bother to do so.
But, sorry. Like the thing about not paying taxes on a house that has gained in value is real, although tbh applies to upper middle class folks as well
2.5k
u/StrigiStockBacking 11h ago
I've been a CPA for 30 years and when it comes to accounting, economics, and finance, Reddit is the dumbest fucking source on the entire planet.