
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.
Key Takeaways
- 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
- They buy real estate and use depreciation to offset their taxes
- 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
Intro
- Aaron Puri is Shaan’s brother-in-law
- Hosts: Shaan Puri (@ShaanVP) and Sam Parr (@theSamParr)
Books Mentioned
- Sons of Wichita: How the Koch Brothers Became America’s Most Powerful and Private Dynasty by Daniel Schulman
How To Pay Zero Taxes
- 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
- He found Donald Trump and Jared Kushner, both basically paid nothing in taxes even though they’re worth hundreds of millions of dollars
- 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
- They buy real estate and use depreciation to offset their taxes
- In addition to depreciation, investors can use cost segregation to reduce their taxes and increase the cash flow of a property
Buy, Borrow, Die Process
- 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
- 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
An Interesting Way of Buying Equity In A Startup
- 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
Buy Nothing Project
- 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
The Waste Management Industry
- 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
Additional Notes
- In life, it’s important to know what you want so you know what needs to get done to get there