What are unrecognized capital gains?
Replace paintings with ownership of a company (equity) and you should get the idea.
There is no guarantee that the current market-clearing price for a given object is equivalent to that at which a larger inventory can be sold.
Taxing capital gains at the time of sale makes sense -- there is actual revenue available for taxation. Taxing unrealized gains can be a path to really-negative outcomes. This is particularly so if the government doesn't give matching credits for unrealized capital losses.
I'm no expert, but I would guess that, if shares are foreclosed upon, the bank's basis is zero (and their taxation short-term)?
(Edit: the downside here is that the government doesn't see any revenue from this approach, which it might otherwise. The shareholder must pay interest, though, which might not be to their advantage.)
This keeps people's capital invested longer term, which is part of the purpose of capital gains tax incentives.
In other words, it's not a loophole. It's working as intended.
If you receive Stock options, you pay taxes over the gains, i.e. the money you would have made if you exercised on that date. Even if you have not exercised. So the options were free, but suddenly you have to find a lot of money to keep them. Or you exercise a part of them.
You have stock in amzn, say you buy at 3200 a share. A year from now it's 4k a share. 800$ capital gains...you get taxed on that.
It is a terrible tax law bc it is unrealized. What happens when you get taxes on that 800$, then the share drops down to 3300, you sell at 3300, making a REAL profit of 100$?
Do you feel fairly taxes at 800$ profit despit having only 100$ profit?
And imagine paying "asset" taxes on that $250,000 home even though you still live there.