How the Wealthy Save Billions in Taxes by Skirting a Century-Old Law

I'm not sure how, but the "margin debt is an infinite free money hack" somehow caught on and won't go away. It's not a free money hack, it's debt that must be repaid with income. Which is always taxable.

That is equivalent to “your stock portfolio will never grow”.

> This only makes sense to me if you have a very large, very diversified portfolio.

You do not need to own much of the stocks to observe a fall relative to the purchase price in a stock you want to keep. The original “wash sale” prohibition just complicates tax planning - for everyone. Since it’s mathematically absurd, it’s prone to loopholes. But you need to spend time to find the loopholes, so wealthy people are (and will) suffer less.

“Wash sale” prohibition harms ordinary stock owners, like me, much more than it harms Steve Balmer.

But then can't they assume the cost basis is $0 if they can't provide documentation to back up something higher? I thought that's how it works in general when you don't have cost basis information available.

It seems very pertinent to me. Taxes pay for the common good.

If people are using loopholes or workarounds to not pay tax, then the common good suffers.

And we all benefit from the common good, even, maybe perhaps _especially_ the billionaires whose companies receive subsidies, or contracts from the government.

Why should the basis be what it is today vs zero? It's pretty simple, if person dies on day N, and we know what we would tax the item as if he sold it on day N-1, then we should be able to know what we should be able to tax it at if sold by the heirs on day N+1.

Zero would acknowledge that the heirs paid literally zero for it. conversely, if the the asset tremendously rose in value (i.e. an order of magnitude or more). then even with knowing the cost basis, one can effectively treat the cost basis as zero without significant effect on the heir (i.e. at a 33% tax rate, if it grows by an order of magnitude and you treat it as 0, instead of 10% of the current value, you only increased the amount of tax paid by 3.3% of the value). If it grows by even more than an order of magnitude, than the percentage drops (2 orders of magnitude and you are at 1/3 of a percent extra vs treating it as zero).

i.e. there really isn't much of a loss to the heir if one has to treat the asset as zero cost basis. and one can always provide said cost basis in the cases where the asset growth can't be measured in even a single digit order of magnitude (but once one breaks a single digit, then there's very little loss to the heir).

In general, I dislike trying to treat different assets classes differently, the rule should be no step up, track cost basis or you as the heir have to treat it as zero.

You make it sound like this was something invented by tax -dodging capitalists getting one over on the government. But in reality the only reason paper entities exist at all is because government wills it so.

IRS laws say you can deduct $3000 ordinary income (i.e. income earned by working, so doesn't include capital gains) per year and deduct without limit against capital gains. Should your capital losses exceed your capital gains that year, you can carryforward the rest of the capital losses without limit onto the next year 2023, 2024, etc.

The whole point of the article is that "tax loss harvesting" beneficial to Steve Ballmer and the other billionaires mentioned in the article, because they have $Bs in capital gains to begin with (Steve Ballmer had highly appreciated MSFT stock as mentioned in the article). An average Joe like you and me even if we have that much capital losses would find it difficult to find the capital gains to deduct against, so we're typically limited to only $3000 per year deducting against ordinary income (compare against no limit for capital gains), which is much less useful tax shield compared to someone like Steve Ballmer who gets most of his income from capital gains, and who therefore can use his massive cap losses to shield against taxation much more effectively. This is the part that makes "Although this is also available to masses" somewhat moot. Even though it's "technically" possible, the masses don't have the massive capital gains to actually deduct against, so they don't benefit from this to nearly the same magnitude as someone who draws most of their income from capital appreciation.

Therefore, one could argue that this section of the tax code is "unfair" in year 2023. The article makes the case that wash sale rule was effective in the 1920s, but that in the 100 years that have passed, technology has made evading the wash sale rule trivial (especially for billionaires), so the rule as drafted in the 1900s is no longer effective at preventing what it intended.

Source: https://www.irs.gov/taxtopics/tc409

Once you die the estate settles the loans via the creditors just grabbing the collateral. I think it would never get taxed then no?