The Buy, Borrow, Die Tax Strategy: How Elon Musk and Carl Icahn Turn Stock Into Cash Without Paying Capital Gains Tax.

A founder sits on $40 million of company stock and draws a $250,000 salary. He wants a bigger house, cash to angel-invest, room to breathe. Selling the shares would trigger long-term capital gains tax at up to 23.8% federal, so he does not sell. Instead he pledges the stock to a bank, draws a line of credit against it, and spends the loan. That is the buy, borrow, die tax strategy, and it is the single most effective way the ultra-wealthy convert appreciated assets into spendable cash without paying income tax. The mechanics are legal, documented in public filings, and used in plain sight by some of the most polarizing names on the Forbes list.

The name describes three moves. Each one removes a different tax that an ordinary person would pay, and the three together can wipe out a lifetime of gains.

1. 01Buy. Acquire assets that appreciate, then hold them. No tax is due until you sell, because federal income tax falls on realized gains, a principle that traces back to Eisner v. Macomber, 252 U.S. 189 (1920). A stock that quintuples on paper generates a tax bill of exactly zero until the moment of sale.
2. 02Borrow. Pledge the appreciated assets as collateral and borrow against them. Loan proceeds are not income, because you have to pay the money back, so the cash you draw is tax-free no matter how much the underlying stock has gained.
3. 03Die. Hold the assets until death. Under IRC §1014, your heirs take the property with a basis stepped up to fair market value on the date of death. The unrealized gain that was never taxed during life simply disappears for capital gains purposes.

The engine of the whole thing is the borrow step. A securities-backed line of credit, often called an SBLOC, lets you pledge a brokerage account and draw cash against it, usually at 50% to 70% of the portfolio value for diversified holdings and less for a concentrated single stock. Because the IRS does not treat borrowed money as income, the draw produces no taxable event. You pay interest, and that is the cost of avoiding the capital gains tax you would owe on a sale. When long-term rates sit at 20% plus the 3.8% net investment income tax under §1411, a few years of loan interest can be far cheaper than handing the Treasury 23.8% of the gain on day one.

The interest is not always a dead loss either. Interest on money borrowed to buy or carry investments is deductible as investment interest, up to your net investment income for the year, on Form 4952 under IRC §163(d). For someone living off dividends and interest, part of the borrowing cost comes back as a deduction.

Tesla's proxy statements lay the strategy out in black and white. As of late August 2025, Musk had pledged roughly 236 million of the 715 million Tesla shares he beneficially owns as collateral, down slightly from 238.4 million pledged at the end of March 2024. After the stock's run-up made the pledges enormous, Tesla's board capped the total he can borrow against his stake at the lesser of $3.5 billion or 25% of the pledged shares' value. Musk is not a clean saint of the strategy. He also sold a large block in 2021 to exercise expiring options and paid roughly $11 billion in tax that year. But the standing pledge facility is exactly the buy-and-borrow machinery, sitting in an SEC filing for anyone to read.

ProPublica's 2021 Secret IRS Files showed the strategy at full throttle. Carl Icahn paid $0 in federal income tax in both 2016 and 2017 despite reporting $544 million in adjusted gross income across that stretch, while carrying a $1.2 billion loan from Bank of America. The loan was secured in part by Manhattan real estate, which made it a mortgage rather than a margin call risk, and Icahn deducted the interest. ProPublica found the 25 richest Americans paid a combined 'true tax rate' of just 3.4% on $401 billion of wealth growth from 2014 to 2018. Musk's true tax rate over that window was 3.27%.

Borrowing offers multiple benefits: huge tranches of cash to turbocharge investment returns, and the chance to deduct the interest from your taxes.

The reason this is not just tax deferral but tax elimination is the third step. Compare a straight sale to a borrow-and-hold on the same block of low-basis stock.

The sale costs $2,142,000 the moment it happens. The borrow costs only interest, and the death step erases the $9 million gain entirely. The estate repays the bank by selling a slice of the now-stepped-up shares, which generates little or no capital gain because the basis was just reset to fair market value. This is the same step-up engine that powers the grantor retained annuity trust estate tax strategy the Walton family used, only here it runs without any trust at all.

The whole structure rests on two pillars that Congress could knock out, and one of them was just reinforced. The One Big Beautiful Bill Act, signed July 4, 2025, left IRC §1014 step-up fully intact and made the federal estate and gift tax exemption permanent at $15 million per person for 2026, indexed for inflation from a 2025 base. For an estate under $15 million, or $30 million for a married couple, the heirs face neither income tax, because of the step-up, nor estate tax. The appreciation is taxed exactly once, which is to say never.

True billionaires do not get off that easily. Above the exemption, the estate tax bites at 40%, so the buy-borrow-die move dodges income tax but not estate tax. That is why the same families layer GRATs, charitable trusts, and other estate freezes on top, the way Peter Thiel layered his founder shares into a Roth. The Peter Thiel Roth IRA strategy and buy-borrow-die solve different taxes, and the wealthy run both at once.

The borrow step has its own failure mode. A securities-backed line is callable. If the collateral drops, the lender can demand more collateral or force a sale at the worst possible moment, which itself triggers the capital gains tax you were trying to avoid. Tesla capped Musk's pledged borrowing for exactly this reason. And the strategy depends on the realization principle surviving. In Moore v. United States, 602 U.S. 572 (2024), the Supreme Court upheld the mandatory repatriation tax but expressly declined to decide whether the Constitution requires 'realization' to tax income, leaving the door open to a future tax on unrealized gains or a billionaire minimum tax that would undermine the 'buy' step.

In miniature, yes. The step-up in basis under §1014 applies to anyone's appreciated stock, rental property, or business interest, not just to nine-figure portfolios. The practical takeaway for a normal household is not to run a $1 billion margin loan. It is to think twice before selling a low-basis asset you intend to hold for the long term, to coordinate which assets you spend down in retirement, and to keep the most-appreciated holdings for your heirs to inherit with a clean stepped-up basis. A small SBLOC or a HELOC can bridge a cash need without forcing a taxable sale, as long as you respect the margin-call risk that takes down the unprepared.