Step 1: Buy
Buy assets that will go up in value and that will not produce cash. You won’t pay taxes on the asset until you sell it or it produces cash. For example, when owning your home, your asset will go up in value and you don’t pay taxes because the government doesn’t tax the appreciation. Buying helps you gain an increase in value without a lot of cash.
Step 2: Borrow
This is how you get cash. Since borrowing is not income, you do not pay tax. The reason you don’t have to pay tax when you borrow is you have an obligation to pay it back at some point. If you sell an asset you borrowed against, you will then have to pay tax as you have realized the gain. For example, when you take a home equity loan, you borrow against its equity and don’t pay it back until you die. This results in never having to pay taxes on the cash borrowed.
Step 3: Die
In step 1, we were able to build wealth without cash. We made wealth without taxable income as our assets go up in value. This leads to step 2, when you borrow money against your non-cash producing assets. Your wealth is increasing because your assets are going up in value and no tax has to be paid.
This brings us to step 3: die. Yes, we will all die. When you die, you get a stepped-up basis as the assets you acquired in step 1 (buy) can now be sold tax free by your spouse or children. Your debts are also paid off tax free, completing the loop (buy, borrow, die). You never paid any taxes in your lifetime and neither will your heirs. They sell your assets and pay off your debts, and what is left over goes to them. Through this you have created generational wealth.
Now you have it, the blueprint for achieving massive wealth and never having to pay taxes. Once again, buy assets, borrow against the unrealized appreciation, and eventually die, leaving generational wealth. It is time you build your wealth and learn to play the game.
Want help reducing your taxes and building your wealth? Book a call with the team at TFW Advisors® today!