November 4, 2020

What is the Buy, Borrow, Die Process? | Aaron Puri on My First Million

Check out My First Million Podcast Episode Page & Show Notes.

How do people get away with paying no taxes?
- They buy real estate and use depreciation to offset their taxes
  - If you buy a residential property, you can depreciate that asset for 27.5 years
  - If you buy a commercial property, you can depreciate it for 39 years
Another way to avoid paying taxes is the buy, borrow, die strategy:
- Buy an asset
- Borrow money against it (it’s considered debt so you pay no taxes)
- Put that money in a trust and when you die, you can pass it down to your kids without paying an inheritance tax
Most recyclables are actually thrown away
- 9% of plastics actually get recycled
- 91% of plastics gets sent to a landfill
  - If anyone could invent a superior or more recyclable material for plastic bottles, it would likely make you a fortune

Books Mentioned

Aaron recently went down a rabbit hole to try to figure out how people avoid paying taxes
- He found Donald Trump and Jared Kushner, both basically paid nothing in taxes even though they’re worth hundreds of millions of dollars
  - “There is a way to pay no federal or state income taxes” – Aaron Puri
How do people get away with paying no taxes?
- They buy real estate and use depreciation to offset their taxes
  - If you buy a residential property, you can depreciate that asset for 27.5 years
  - If you buy a commercial property, you can depreciate it for 39 years
In addition to depreciation, investors can use cost segregation to reduce their taxes and increase the cash flow of a property

Another way to avoid paying taxes is the buy, borrow, die strategy:
- Buy an asset
- Borrow money against it (it’s considered debt so you pay no taxes)
- Put that money in a trust and when you die, you can pass it down to your kids without paying an inheritance tax
Example: Larry Ellison has a $10 billion line of credit that he paid zero taxes on and can use the money however he wants
- When Larry dies, he can write in his will to transfer the remaining wealth to his children through a stepped-up basis and avoid the inheritance tax
  - This process of buy, borrow, die can be repeated generation after generation

Harvey Multani is an investor who helps create employee-led SPVs (special purpose vehicles)
- In other words, he helps employees buy equity in the company’s next funding round
Chris Sacca did something similar where he bought Twitter shares from employees and eventually accumulated a big enough stake that made him a billionaire
- This works because sometimes employees want to sell their shares because they need cash, and on the other side, investors want to buy equity in a company that’s still private

The Buy Nothing Project is a grassroots community with 1.2 million participants in 25 countries and has 6,000 volunteers
- The organization offers people a way to give, receive, and borrow items through a worldwide network of hyper-local gift economies

Most recyclables are actually thrown away:
- 9% of plastics actually get recycled
- 91% of plastics gets sent to a landfill
  - If anyone could invent a superior or more recyclable material for plastic bottles, it would likely make you a fortune
To learn more about the waste management and materials industry, Sam recommends reading Sons of Wichita: How the Koch Brothers Became America’s Most Powerful and Private Dynasty by Daniel Schulman
Often times, the more the boring industry, the easier it is to make money in it
- The more fun the industry, the more competition and harder it will be to succeed

In life, it’s important to know what you want so you know what needs to get done to get there