At 78 He’ll Need $150,000 and Borrow Against the Brokerage Account Instead of Selling Stock He’s Held Since the Nineties. The Gain Has Never Been Taxed, and If He Holds On, It Never Will Be

He’s 78, he needs $150,000, and the obvious source is stock he’s held since the nineties. Selling it means paying capital gains tax on three decades of growth. Borrowing against the brokerage account raises the same cash with no tax bill, and if he holds the shares until death, that gain is never taxed. This “buy, borrow, die” strategy is legal. It also carries risks, including interest costs and forced sales, that can exceed the tax saved.

Two Tax Rules Make the Gain Disappear

The first rule covers loan proceeds. Borrowed money isn’t taxable income because a loan creates a legal obligation to repay it, so you haven’t earned anything. A sale is different: for an ordinary stock sale, the gain is recognized on the trade date, not the settlement date.

The second rule is Internal Revenue Code Section 1014. Property included in your estate generally takes a basis (the cost figure used to measure gain) equal to its value on the date of death. Everything the shares gained during your life is never taxed as capital gain. Your executor repays the loan from the estate, often by selling shares that now carry the new basis, and the gain disappears. For 2026, estates also get a basic exclusion of $15,000,000 before estate tax applies.

What a $150,000 Sale Really Costs You

Here’s a worked example built on stated assumptions: a married couple filing jointly, both on Medicare, with $260,000 of other 2026 income. The shares’ basis is 10% of their value. The gain is taxed at the 15% long-term rate, plus the 3.8% net investment income tax, which applies to joint filers with modified adjusted gross income (MAGI) above $250,000.

To net the cash, they’d sell about $180,549 of stock, realize roughly $162,494 of gain, and owe about $30,549 in federal tax. Their MAGI would rise to about $422,494.

Then Medicare’s bill shows up. Income-related premiums are based on your tax return from two years earlier, so 2026 premiums use 2024 MAGI. At 2026 rates, joint filers above $410,000 pay $649.20 a month each for Part B plus an $83.30 Part D surcharge, compared with $284.10 and $14.50 in their current band. That works out to about $10,414 more for the couple in that year. A loan never impacts MAGI.

Loan Interest Keeps Running Until Death

A securities-backed line of credit (a revolving loan secured by your portfolio) usually charges a variable rate, set as a spread over a benchmark. The federal funds target rate’s upper bound is at 4.00%, and the 1-year Treasury yielded 4.47% on October 9. Each percentage point on the loan costs $1,500 a year, and you keep paying for as many years as you live.

You can deduct that interest only in limited cases. Interest on debt allocated to purchasing or carrying property held for investment may qualify under Section 163(d), subject to the net-investment-income limit and itemizing requirements. Interest on money spent on living costs is nondeductible personal interest.

A Market Drop Can Force the Sale Anyway

Lenders cap the loan at a share of the pledged value and require you to maintain it. If the portfolio falls below that level, the lender can demand more collateral or repayment, or sell your pledged securities itself, often with little notice and at its discretion. You end up making the very sale you were avoiding, at low prices, and still have to pay the tax bill.

A position held since the nineties may be concentrated in one company, and borrowing against it adds to that exposure. Variable rates can make the loan much more expensive. The whole plan also depends on holding until death. If you need to sell for any reason, you’ve deferred the tax and paid interest in the meantime.

Which Borrowers the Strategy Fits Best

It fits someone who is advanced in age, has a large embedded gain, a diversified portfolio to pledge, plenty of cash elsewhere to cover a collateral call, and a short expected horizon. It fits less well for someone who might need to sell, has concentrated collateral, or lacks separate liquidity. The strategy only works if the rest of the estate paperwork holds up around it (we put the full checklist, beneficiary forms and titling included, in a free estate guide here).

Cheaper Exits to Price First

1. Specific identification: Tell your custodian exactly which lots to sell (the highest-basis shares) before the trade settles, and get written confirmation.
2. Donate appreciated shares: Give long-held stock to charity. You owe no tax on the gain, and you may get a deduction if you itemize.
3. Qualified charitable distribution: At 70½ or older, you can send IRA money straight to charity and keep it out of your income.
4. Spend from the IRA: Your heirs get the step-up on the taxable account but owe income tax on an inherited IRA, so drawing down the IRA first may be the better trade.

A key question before signing anything: what happens to this arrangement if the market falls sharply next year?

Contact [email protected] for any questions or corrections.