Many people assume the U.S. tax system is unfair because the wealthiest Americans often pay far less in taxes than the average worker. While most employees can pay up to 37% of their income in federal taxes alone, some of the richest individuals in the country legally pay little—or even nothing—in income taxes.
This isn’t because they are breaking the law or hiding money offshore. It’s because they understand how the tax code works and structure their wealth accordingly. One of the most powerful frameworks behind this is known as the Buy, Borrow, Die strategy.
Understanding this strategy starts with one key idea: the tax system taxes income aggressively, but it taxes wealth very differently.
Income Is Taxed. Wealth Is Structured.
When you earn wages from a job, that income is immediately taxable. Federal income tax, Social Security, Medicare, and often state taxes are withheld before the money even reaches your bank account.
However, when you buy assets—such as real estate, stocks, or businesses—that increase in value over time, that growth is not taxed unless you sell. This increase in value is called an unrealized gain, and unrealized gains are not considered taxable income.
This distinction is the foundation of the Buy, Borrow, Die strategy.
Buy: Building Wealth Through Appreciating Assets
The first step is simple in concept but powerful in execution: buy assets instead of relying solely on income.
When wealthy individuals acquire appreciating assets, their net worth grows year after year. Yet, because they have not sold those assets, their taxable income remains relatively low. On paper, they may be extremely wealthy, but for tax purposes, nothing taxable has occurred.
This is why focusing only on earning more income often leads to higher taxes, while focusing on ownership creates long-term tax efficiency.
Borrow: Accessing Cash Without Triggering Taxes
The next step is where most people get stuck—and where the strategy truly separates wealth builders from wage earners.
When you borrow money against an asset, that money is not taxable income. A loan is not income because it must be repaid. Wealthy individuals use this rule to their advantage by borrowing against assets instead of selling them.
For example, someone who owns real estate or investment assets worth several million dollars can borrow hundreds of thousands of dollars against those assets. The borrowed funds can be used for living expenses, investments, or business opportunities—without triggering income or capital gains taxes.
Selling assets creates taxable income. Borrowing creates liquidity without taxes.
Over time, assets may continue to appreciate faster than the cost of borrowing, allowing wealth to grow even while cash is being accessed.
Die: The Step-Up in Basis That Erases Capital Gains
The final—and most misunderstood—part of the strategy occurs at death.
When assets are passed to heirs, they generally receive a step-up in basis. This means the tax basis of the asset is reset to its fair market value as of the date of death.
Why does this matter?
Imagine an asset purchased for $1 million that grows to $10 million over several decades. If it were sold during the owner’s lifetime, capital gains tax would apply to the $9 million increase. But if the asset is held until death and then inherited, the basis resets to $10 million.
That lifetime of appreciation is not deferred—it is effectively erased for tax purposes. Heirs can often sell the asset shortly after inheriting it and owe little to no capital gains tax.
This applies to real estate, stocks, businesses, and many other appreciating assets.
Lifetime Estate and Gift Tax Exemptions
In addition to the step-up in basis, the tax code provides a generous lifetime estate and gift tax exemption.
Currently, each individual can transfer roughly $14 million during their lifetime or at death without paying federal estate or gift tax. Married couples can effectively double this amount, allowing close to $28 million to pass to heirs federally tax-free.
While these numbers may seem high, long-term asset appreciation, real estate growth, business expansion, and inflation can push asset values much higher over time. Additionally, these exemption amounts are scheduled to be reduced in the future unless Congress acts, making proactive planning even more important.
Why This Strategy Works
When combined, the Buy, Borrow, Die strategy explains how many wealthy individuals maintain low taxable income while enjoying significant lifestyles and passing assets efficiently to the next generation.
They:
Build wealth through asset ownership
Access cash through borrowing instead of selling
Avoid triggering income and capital gains taxes
Transfer assets with stepped-up basis and minimal estate tax exposure
This is not a loophole. It is the result of understanding how the tax system incentivizes long-term investment and ownership.
Is This Strategy Only for the Ultra-Wealthy?
No. While the scale differs, the principles apply to business owners, real estate investors, and long-term planners at many levels. However, this strategy must be implemented carefully. Borrowing involves risk, interest rates matter, cash flow matters, and improper planning can create financial strain.
This approach works best when combined with professional tax planning, estate planning, and intentional structuring.
The U.S. tax system rewards ownership, patience, and long-term thinking. It heavily taxes wages and short-term income, but it provides powerful advantages to those who build and structure wealth correctly.
Understanding the Buy, Borrow, Die strategy is the first step. Applying it responsibly to your specific situation is where real value is created.
If you want help understanding how these principles apply to your business, investments, or long-term goals, schedule a consultation with our team. Proper tax strategy isn’t about avoiding taxes—it’s about planning intelligently and legally.
📅 Book your tax strategy consultation here: https://ceibaaccounting.com/contact-us