The tax advantage of not selling
For a founder whose wealth is mostly company shares, a soaring net worth does not automatically create taxable income. In the United States, an increase in an asset’s market value is generally an unrealized gain: the owner has not sold it, so the gain usually is not taxed as income yet.
Selling shares can turn that paper gain into a realized gain and trigger capital-gains tax. Instead, some wealthy investors borrow against their shares or other assets. A loan is generally not income because it must be repaid. The borrower can use the cash without selling the asset—and without realizing the gain at that moment.
How the strategy can keep going
If the asset rises in value, the owner may be able to borrow again or refinance, using the appreciated holdings as collateral. That can fund spending while the original investment remains unsold. The key distinction is that the tax advantage comes from delaying a sale, not from making the gain disappear immediately.
This approach has real costs and risks. The borrower owes interest, and if the collateral falls sharply in value, a lender may demand more collateral or repayment. Selling assets to meet that demand can produce a tax bill precisely when prices are down. Dividends, salaries, and other taxable income can also still be subject to tax.
What happens later
At death, inherited assets may receive a new tax basis under current U.S. law—the basis is generally reset to their value at that time. That can reduce capital-gains tax if heirs later sell, though estate taxes may apply to sufficiently large estates, and tax rules can change. The result is a system in which borrowing can provide spendable cash while gains remain unrealized; whether that ultimately avoids tax depends on what happens to the assets and the estate.
