Can you clarify the "... with shares that got stepped up basis, and essentially capital gains are never paid". Does this mean that when he dies, no tax is paid for the increase in the value of his stock between when he time he bought them, and the time he died. ?

@MTilsted The cost basis for inherited shares is "stepped up" to the owner's date of death. So the inheritor's capital gains, or losses, would be assessed from that date onward.

Its probably important to note that afaik, this works well for people who have an estate up to and somewhat over the exemption threshold (currently $11M or $22M), but the more you have over that, the less useful this loophole is, since you get hit with estate taxes (although you would get hit with that anyway, so maybe it all evens out and you still win?)

How is he "avoiding paying any taxes" if he takes out a loan to pay taxes?? Didn't he, by some means or another, write a huge check to the IRS?

@chili555 yes on shares sold in 2021 the question is however about behaviour in years where he does not sell massive amounts of shares.

@chili555 I think the point is that he's not getting a large cash salary (low tax burden) and get stock (no tax until he sells). So then any day-to-day expenses, as well as other taxes, can be paid via the loans. But the absolute value of that tax is far lower than it ordinarily would be.

Even his estate will not have to pay capital gains tax. If he sells the shares he will first pay capital gains tax and then the estate will be hit with estate taxes on whatever is left. If he doesn't sell, neither he nor his estate owe any capital gains tax. The estate still owes estate tax.

@chili555 Imagine if you actually had a salary of $0, or $50,000 or whatever gets you the EIC benefits. But instead of just being limited to living within those means, you take out a $50 million dollar loan with a 5% rate. That's way less than the capital gains tax. And you probably make more than that if your stock is rapidly growing anyway.

@WayneWerner but the capital gains tax is once. The 5% is every year until you a) die; or b) sell the stock to pay the loan off at which point you pay the capital gains tax also. Loans like this long-term put you on the wrong side of compounding aka "the rocket equation of personal finance".

@WayneWerner But if you have to pay 5% on $50M loan, you need $2.5M a year. Probably a bit more to service some of the principle. Won't you have to show an income commensurate with the loan service amount and hence pay some income tax?

@RedBaron Musk is the richest man in the world, not some average Joe with a mortgage. Pretty sure his billions worth of stock would serve as collateral for a loan.

Elon Musk says he'll pay $11 Billion in taxes this year. That's on "money" that he created - the government didn't print it. It's "value" or "wealth" that his labor (and stock market speculation) brought into existence. Is he really not paying his "fair share"? These are all just numbers on a piece of paper (or in some digital account). They don't always translate well to lifestyle. Some celebrities have a net worth in the tens of millions and live much more lavish lifestyles than Elon Musk. It seems to me that some people are grabbing their pitchforks without good cause.

@fyrepenguin not getting a large cash salary (low tax burden) and get stock (no tax until he sells) this is completely wrong. If you're paid in stock you must claim and pay taxes on the value of the stock at the time given to you just like dollars. He's being paid in way out of the money options.

@JSLavertu Collateral has nothing to do with servicing the loan. RedBaron said Elon still has to pay interest, that has nothing to do with collateral.

And yet, based on the leaked IRS data he’s paid hundreds of millions of dollars of income taxes over the last few years… it may be true that somewhere there is some bank or insurance company that will make lifetime loans which require zero servicing payments but I’m skeptical. Though I understand that is the claim being made in various pieces advocating for a wealth tax.

One comment was factually incorrect (stock awards are not tax free), one is at least misunderstanding the issues at hand (loan service and loan collateral are two different things). That’s where this began. I agree the question is about a strategy not morality but the issue is a lot of this commentary is speculative and misinformed and should probably all be deleted which is what ultimately occurred the last time this same question was asked.

""fair share" is subjective" You seem to be aware that, being subjective, both sides can be argued, and therefore it's debatable. Here is an argument one way: "if it's so unfair, why is it legal". Here is one the other way: "it's unfair because only very rich people can use this method".

(thanks for removing it from the answer, though)

@njzk2 "fair share" is subjective, but really it's demagoguery. The fairest share would be no taxes at all, but then we wouldn't be able to live as a society. There's always going to be someone who disagrees with taxation, implementation, level of taxation, purposes for which the tax funds are used, etc etc, and there's always going to be someone yelling "unfair!".

@littleadv Sure, "fairness" is a moving target, and individually framed. However, if Joe the Plumber has to pay tax on his income, but Elon Tusk can avoid it by instead setting up some financial vehicle that provides him with income - something is asymmetric. It is historically unwise to screw the working masses, it tends towards violence in the end. It is in everyones interest to pay "fair" taxes - yet still in each individuals interest to not pay any. It is a prisoners dilemma - goverment has to step in, make sure the optimal gets chosen. The US tax code is looong overdue a refactorization.