1) You purchased $100 of SPY on June 15th, 2020

2) You're buying a house, and you need $100 today.

3) You sell $100 of SPY, and pay short-term capital gains (up to 37%)

OR...

1) You purchased $100 of SPY on June 15th, 2020

2) You're buying a house, and you need $100 today.

3) You take a loan for $100

4) You wait until June 15th, 2021 and then sell $100 of your SPY holdings, paying long-term capital gains (15-20%)

5) You repay the $100 loan

...it doesn't really avoid tax. It's just an alternative way of accessing capital by taking out a loan instead of liquidating assets.

That's not accurate. It has several benefits (like interest payments being deductible expenses) and wealthy people can continuously borrow to pay off other debts as their other assets appreciate. You just need the rate of appreciation of your assets to be higher than the interest rate. For very big loans, it's quite possible.

Finally, it's also possible to roll the gains into a trust and the cost basis is adjusted to zero on death. [0] So yes, it's tax avoidance.

[0]: E.g. this is how it's possible to do that: https://wellergroupllc.com/taxes-resources/tax140-guide-dete...

The above basically arbitrages long-term vs short-term capgains for the price of 1 APY cycle, right? That's ~23% for short in the USA, and up to income-level (37%?) for short-term. Quite a big difference for a 2-5% APY loan that you close after 1 year, and the numbers would seem to scale better the higher you go.

But if the asset sale + the debt leaves you at a loss wouldn't you be able to avoid paying the capital gaibs over the asset sale?

The theoretical assumes SPY increased over the time period. If it decreased, you could of course sell it and pay 0% since your investment lost money, short/long-term gains wouldn’t matter because there wouldn’t be any gains.

I might be misunderstanding your question though.

Debt is not a loss unless you default on it.

https://youtu.be/8pBPZMUcsh0 They never sell, they borrow over that invested money and pay 3% (interest) instead of 37% (income tax)

The assumption is that you are using the money for an income generating activity like buying a rental property.

The correct expression to use to refer to such money is “loan”, not “tax evasion”.

Hm, but income from rental is also taxed, isn't it? If so, how does it help?

The income from the rental is taxed, but slowly over decades. You don't have to take that entire tax hit in one year.

Also, people buying rental property from cash they earned from wages or selling their business pay tax on the wages/gains and the rental income, not just the latter...

You can also sell it and take the gains tax free in many cases.

Short of a 1031 exchange, I'm not sure how you would do that.

You can sell a house every 2 years and write off up to $500k in capital gains as long as it’s been your primary residence for 2 of the last 5 years. Doesn’t need to be consecutive.

Sure, but you have to stomach the 6% commission you’re paying to the brokers, which really limits this situation to transitory market conditions instead of a get rich quick strategy.

Chances are it doesn't, but the IRS won't go after rich people if they claim they don't have any taxes to pay.