When you own valuable assets like stocks or property, selling them for cash might seem like an easy way to get the money you need. However, selling can come with some hefty tax penalties. You could end up paying up to 20% (or more) in taxes on any gains you make, which means handing over a big chunk of your hard-earned money.

Example 1: The Tax Hit on Stocks

Let’s say you bought some stock for $10,000, and now it’s worth $20,000. If you sell, you’ll pay taxes on the $10,000 profit. Depending on your tax bracket, you could lose up to 20% of your gains to taxes—about $2,000. So, after selling, you’d only have $8,000 in your pocket. But what if you didn’t have to sell? What if you could borrow against your stock without triggering those taxes? That way, you can keep your $10,000 working for you without paying taxes upfront.

Here’s where it gets interesting: many banks offer low-interest loans that let you borrow against your stock portfolio. These loans, often called “portfolio loans,” allow you to access cash at relatively low rates—sometimes as low as 3-4%. You can use the loan for other investments, purchases, or whatever you need—all without giving up ownership of your stock or having to pay capital gains taxes. The interest you pay may also be tax-deductible, which could help offset costs even further.

So in this scenario, you’d still have your $10,000 working for you in the market, while getting access to cash when you need it—without those hefty taxes. It’s like having the best of both worlds!

Example 2: Using Your Home’s Equity

If your home has appreciated in value, and you need cash—for an emergency or a great opportunity—selling it could mean paying taxes, closing fees, and moving expenses. Instead, by tapping into your home’s equity with a home equity loan or a home equity line of credit (HELOC), you can access that cash without selling your property. Home equity loans typically come with much lower interest rates than credit cards or personal loans.

For example, if your home’s value has increased by $100,000, selling it would mean paying taxes on that gain—possibly around 20% or more (meaning $20,000 or more in taxes). But if you take out a $50,000 HELOC, you get the cash you need without selling, and you don’t lose that $20,000 in appreciation to taxes.

Why Borrowing Makes More Sense

1. Keep Your Investments: Borrowing allows you to keep your valuable assets. You can let your stocks or property continue to grow in value, rather than cashing them out and paying taxes.

2. Lower Interest Rates: Loans secured by assets like your home or portfolio often have much lower interest rates compared to unsecured loans, credit cards, or personal loans. This makes borrowing much more affordable.

3. Avoid Taxes: When you sell, you trigger capital gains taxes, which can eat into your profits. But with a loan, you don’t have to worry about paying taxes upfront. You can save money and keep your investments intact while still getting access to the cash you need. Plus, those investments can continue to grow.

How Much Could You Save by Borrowing?

Let’s say your stock portfolio is worth $100,000 and has grown by $50,000. If you sell, you’d owe taxes on that $50,000 gain. If you’re in the 20% tax bracket, you’d owe $10,000 in taxes.

But if you instead borrow $50,000 using your stocks as collateral, you wouldn’t owe those taxes. That’s a savings of $10,000 right there!

What About the Loan’s Interest?

The bank will charge you interest on the loan, of course. Let’s say the interest rate is 5% per year. On a $50,000 loan, that means you’d pay $2,500 in interest during the first year.

So, What’s the Net Savings?

• Taxes saved by borrowing (20%): $10,000

• Interest paid on the loan (5%): $2,500

• Net savings: $10,000 (taxes saved) - $2,500 (interest) = $7,500 in savings in the first year alone!

Why Borrowing Can Be Smart

By borrowing, you avoid paying taxes upfront, save $7,500, and keep your stock portfolio growing. While the interest will add up over time, borrowing can still be a smart way to access the cash you need without having to part with your investments.

Conclusion: Borrow Smart, Not Hard

When you need cash but don’t want to part with your valuable assets, borrowing can be the smarter move. Whether it’s a home equity loan or a margin loan, borrowing lets you tap into the value of your assets without selling them and triggering tax penalties. Plus, loans secured by assets like your home or stocks tend to have lower interest rates than other types of borrowing.

Before you sell, consider borrowing instead. It could save you a ton of money in taxes, help you keep your investments intact, and keep you on track to reach your financial goals. 😊