Are Margin Loans A Tax Efficient Way To Cover Business Operations and Capital Ex…

by akoloy


I had a extremely good 2020 financially resulting from catching some tailwinds from the pandemic. I’m additionally arrange nicely for 2021 and I count on the following 3 quarters to supply comparable earnings ranges.

My enterprise is positioned to purchase some actual property at some preferential phrases on the similar time we plan to make some new capital investments. The actual property will probably be leased with an up-front fee. The actual property is an efficient deal, nevertheless it requires a down fee past my typical money reserves. My enterprise is actual property so most of my steadiness sheet is illiquid, and a few of that fairness is locked in partnerships.

My 2020 earnings past my anticipated money wants had been invested in a brokerage account ($500k-$1MM steadiness). These investments did nicely in 2020 so there’s fairly a little bit of brief time period capital good points tax expense related to promoting a few of these tons previous to switching to long run capital good points. I’m pondering {that a} margin mortgage towards this cash is essentially the most tax environment friendly method to make use of the fairness within the brokerage account whereas not triggering a sale for brief time period capital good points. It needs to be a sufficiently small quantity {that a} margin name is a comparatively small threat wanting Armageddon. I ought to solely want this mortgage as a bridge between closing and receipt of the preliminary lease fee.

Is there any cause to not faucet this fairness with a margin mortgage? Looking at charges it is cheaper to make use of a margin mortgage from low value brokerages (1.5%-3%) than I might get for an working mortgage.



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