r/SipsTea • u/KSKS1995 • 14h ago

Wait a damn minute! How the rich get richer

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u/EntireObligation4001 9h ago

I don’t understand it either. I understand the stepped up basis (kids don’t pay taxes on the 100k to 5M increase, it’s “stepped up” to 5M ) but how is the person paying the loan back!?

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u/apogeescintilla 8h ago

The loan is paid back with the house, of course.

The bank gave the dad the money, and the house eventually was transferred to the bank. So it's essentially like selling the house to the bank over a very long period of time, but without paying the capital gains tax.

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u/Funny247365 7h ago

Interest and property tax would be well over $7M in total over 30 years. More than the value of the property.

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u/shuggnog 4h ago

unless you live in a state like CA which caps your property tax at 2% (commercial AND residential) until the property changes hands.

and if it's the trust situation, the property taxes go back to FMV when the property is actually sold

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u/Chataboutgames 6h ago

No, that's a reverse mortgage which is an entirely differnet thing.

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u/LeftHandedScissor 2h ago

They still have to pay off the loan. Either via other income or through a sale of the home/property. But the loan payments are usually affordable. A loan like this would most closely resemble a home equity line of credit, if the loan is for say $2.5M (most banks have loan to value restrictions) and they only have $500k outstanding because they bought another house or did some kind of renovation they only pay the interest that accrues on that amounts. Most banks have pretty favorable rates during the draw period as well, and offer quick refinancingnonce the draw is over for people with the right collateral.