Deferring taxes is essentially an interest-free loan from the government to you. You can take that money, invest it, and then keep most of the earnings when you eventually pay the taxes.

There are also some loopholes where capital gains taxes deferred until after death just don't get paid at all. This is the "step-up basis" where your inheritors get to reset the basis of capital assets and neither you nor they has to pay taxes on the capital gain.

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phkahler 2 hours ago | parent | next [-]

This is what they call "buy borrow die" or some such. Buy an asset, borrow against it, die to reset the basis. Your estate will still have to repay the loans, but... that one part I don't really understand. Do they just refinance, taking a new loan against the newly valued asset?

This all seems to benefit from low interest rates. Was it a thing in the 90's? Or even the 80s when rates were much higher?

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dminor 2 hours ago | parent [-]

It's a strategy that's only really available to the ultra wealthy, because the banks are willing to give them a bespoke loan with a much lower interest rate that's payable after they die. There's also a complex trust setup to pass the asset to their heirs.

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hparadiz an hour ago | parent [-]

These laws are the way they are so that if a kid has their parents die they aren't facing an immediate giant tax bill on cap gains. It applies to basically anyone inheriting even a normal house. The difference in cost basis could be 90% of the value.

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singron an hour ago | parent [-]

You only pay cap gains if you realize gains, so you would only face a huge tax bill if you had a pile of cash dumped on you. E.g if you inherit a $1M house and sell it, and the IRS thinks you own 20% taxes on $900,000 of gains, then you have $1M of cash on hand to pay $180K in taxes.

(Also, if you live in the house for 2 years and then sell it, you can exclude $250K-$500K in gains, but that has nothing to do with inheritance).

	▲	toast0 14 minutes ago \| parent [-]
		It would depend... elsewhere on thread, someone says Canada treats death as disposition, and capital gains tax is due for a transfer on death. Family farms are the sympathetic example of choice. Let's say your parent's family farm, that they started from nothing in the 1950s is now worth $20M. If you have to sell it to pay the taxes, because the estate doesn't have $4M to pay capital gains tax, plus $2M for estate taxes, then another family farm goes corporate. Maybe you can inherit the capital property at the original owner's basis... then you'd only owe the cap gains tax if you sold it, and you'd have money to pay it because you sold it. That could work... although one nice thing about the step-up in basis on death is that nobody has to dig through to find the old records to establish basis when there's a clearly established death instead.

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dsizzle 3 hours ago | parent | prev [-]

Yes, and when you do pay it's a lower "real" tax (due to inflation)

	▲	hirako2000 33 minutes ago \| parent [-]
		Good point about inflation. Deferring can make sense. I was thinking what we earn today is more enjoyable to spend today than when we have bad knees and whatnot.