Borrowing against assets instead of selling them: what "be your own bank" and buy, borrow, die mean

Borrowing against an asset means pledging it as collateral for a loan or line of credit (opens in a new tab) instead of selling it. You receive cash, you stay responsible for interest and repayment, and the lender holds rights over the collateral. If the collateral loses value, the lender can ask for more collateral or repayment and, where the agreement allows, sell the asset (opens in a new tab). Loan proceeds generally aren't federal gross income (opens in a new tab) because they must be repaid, but a later sale, liquidation, transfer of ownership or canceled debt can create tax consequences. "Buy, borrow, die" describes holding appreciated assets, borrowing against them, and passing them on at death, where inherited-property basis rules (opens in a new tab) may apply. Terms depend on the asset and the contract.

What does it mean to borrow against assets?

Pledging property as collateral for a loan while keeping ownership is the common thread, and the lender's rights apply if the borrower defaults or the collateral loses value (opens in a new tab). The same idea shows up in several products: securities-backed lines of credit (SBLOCs), margin loans, home-equity borrowing, real-estate loans, crypto-backed loans, and loans against the cash value of life insurance (opens in a new tab).

An SBLOC is a line of credit secured by stocks, bonds or funds in an investment account. The loan-to-value ratio (LTV) is the loan balance divided by the value of the collateral, and it matters because it shows how much room the collateral has to fall before the lender acts.

Owning an asset and being able to borrow against it are different things. The Federal Reserve's 2022 Survey of Consumer Finances (opens in a new tab) found that 54.3 percent of US families held retirement accounts, 21 percent directly owned stocks and 16.1 percent held cash-value life insurance. Those figures measure ownership. Whether an asset can serve as collateral depends on retirement-account restrictions, the account structure, the lender's policy and state law.

How does the process work step by step?

An asset-backed loan follows a fairly consistent order, though each lender writes its own details. FINRA's description of an SBLOC (opens in a new tab) maps onto it:

1. The borrower identifies eligible collateral and confirms ownership.
2. The lender values the collateral and sets an advance limit, which is the share of the value it will lend against.
3. The borrower signs the loan agreement, which sets out rates, fees, maintenance requirements and the lender's right to sell.
4. The borrower draws funds, often as needed rather than all at once.
5. The borrower pays interest while the loan is outstanding.
6. The lender keeps checking the collateral's value against the loan balance.
7. The borrower repays, refinances or, if requirements go unmet, faces enforcement.

Because the lender revalues the collateral continuously, step 6 never stops, and it's the step that connects an ordinary-looking credit line to the risks covered below.

What does borrowing cost?

The borrower pays interest, and under many agreements that interest may compound or be added to the principal. A variable rate can raise the payment or the balance over time, which matters most for loans that run for years. Beyond interest, costs can include origination, commitment, custody, transfer, withdrawal, transaction, maintenance, default and liquidation fees, all listed among the costs and risks FINRA describes for SBLOCs (opens in a new tab).

No single rate or fee schedule applies across lenders. A rate, fee or crypto loan-to-value figure is only usable alongside the provider's name and the date of its current agreement, so the borrower's own written fee schedule is the document that answers "what will this cost per year." A useful way to ask is for the total annual cost, adding every fee to the interest, and for the rules on how the rate can change.

What happens if the collateral falls?

When the collateral drops in value, the loan becomes a larger share of what backs it. Because security prices change constantly (opens in a new tab), collateral can become insufficient, and the firm may then require repayment or more collateral, or sell securities. A lender may also decide that an asset it once accepted no longer qualifies. FINRA's separate guide to margin calls (opens in a new tab) walks through how collateral requirements play out in examples.

The sequence usually runs from a maintenance call (a demand to add collateral or repay), to a deadline, to a forced sale if the deadline passes. The figures below come from FINRA's SBLOC page.

A larger advance leaves less room for a decline, so a higher loan-to-value comes with a higher chance of a call. Those ranges describe a regulator's general picture, not any one lender's terms, and they say nothing about rates or fees. Whether the lender must contact the borrower before selling, and whether the borrower can pick which assets are sold, are questions for the agreement itself.

What is "buy, borrow, die"?

"Buy, borrow, die" is shorthand for three steps. The first is buying or holding appreciated property rather than selling it. The second is borrowing against it, since borrowed funds generally aren't income. The third is dying while the property is still owned, when section 1014 of the Internal Revenue Code (opens in a new tab)+OR+(granuleid:USC-prelim-title26-section1014)) generally gives property acquired from a decedent a basis tied to its value at death. IRS Publication 551 (opens in a new tab) describes inherited property as generally receiving a fair-market-value basis at the date of death, with exceptions and consistency requirements.

The loan doesn't disappear at that point. It remains a debt of the estate, and the estate or beneficiary has to address it through repayment, sale, collateral enforcement, refinancing or another lawful arrangement. A basis adjustment doesn't discharge a loan. The outcome can also differ for jointly owned property, community property, property transferred shortly before death, estate-tax reporting, state law and assets outside the general rule. Publication 559 (opens in a new tab) covers estate basis and what happens after death.

Current law generally taxes capital gains when they are realized, and a basis adjustment at death can eliminate federal income tax on unrealized appreciation, as Treasury's FY2025 General Explanations (opens in a new tab) lay out. That document, released in March 2024, also proposed a 25 percent minimum tax on "total income," generally including unrealized gains, for taxpayers with wealth above $100 million, with installment payments and credits against later realized gains. That was a policy proposal, not an enacted rule. H.R. 8558, the Billionaire Minimum Income Tax Act (opens in a new tab), was introduced in the 117th Congress in 2022, and introduction did not enact it. A tax professional can confirm what law applies at the time of any decision.

Are loan proceeds taxable?

Borrowed money isn't included in gross income (opens in a new tab) because the borrower has an obligation to repay it. That rule covers the cash received; it doesn't cover everything that can happen to the collateral or the debt afterward.

Three situations deserve a tax question:

• A sale or liquidation of the collateral. A forced sale can produce a gain or loss, the same as a voluntary one.
• A transfer or abandonment of secured property. Transfer or abandonment of secured property may be treated as a sale (opens in a new tab), with the amount realized determined under recourse or nonrecourse rules.
• Canceled debt. If a lender cancels part of a loan, the canceled amount may be taxable income (opens in a new tab), subject to exclusions and exceptions.

So, borrowing generally defers a sale; it does not erase every possible tax event. The records worth keeping are the loan agreement, the dates and amounts of draws and repayments, any sale confirmations and any tax forms the lender sends.

When can crypto borrowing create a tax event?

For federal tax purposes, Notice 2014-21 (opens in a new tab) treats convertible virtual currency as property and applies general tax principles. A taxable event can arise when digital assets are sold or exchanged, when a lender takes ownership of collateral in a transaction treated as a sale or exchange, when collateral is forcibly liquidated, or when the deal is legally structured as a sale rather than a loan. Revenue Ruling 2019-24 (opens in a new tab) addresses hard forks and airdrops; it is not a safe harbor for crypto-backed loans.

Reporting is a separate question from taxability. Form 1099-DA broker reporting (opens in a new tab) applies to specified digital-asset sales or exchanges, with reporting starting for transactions on or after January 1, 2025, and basis reporting phased in for certain transactions on or after January 1, 2026. Under Notice 2024-57, certain digital-asset lending transactions are temporarily excepted from broker reporting until further guidance. Relief from reporting doesn't make the underlying transaction tax-free, and compensation or other income can still be taxable. The IRS's pages on Form 1099-DA (opens in a new tab) and its instructions (opens in a new tab) list the details.

What does "be your own bank" mean?

The phrase has at least three uses, and a reader running into it in one setting may be seeing a different idea from the one next door.

Asset-backed borrowing. Here the phrase means using assets you own as collateral for liquidity instead of selling them. It is descriptive shorthand, not a legal status, and it doesn't remove the lender from the picture.

Bitcoin self-custody. In Bitcoin culture the phrase refers to controlling your own private keys instead of relying on a custodian. The Bitcoin white paper (opens in a new tab) describes a peer-to-peer system without a financial intermediary. Control of the keys is what the phrase means in practice; it doesn't create a regulated bank or deposit insurance.

Whole-life "infinite banking." Nelson Nash's book Becoming Your Own Banker uses the phrase for a whole-life-insurance strategy built on cash value and policy loans. Policyholders may borrow against whole-life cash value (opens in a new tab), and policy loans affect policy values and proceeds under the policy's terms. A NAIC committee document (opens in a new tab) also addresses repayment of policy loans from proceeds. A separate guide explains how whole life cash value and policy loans work (opens in a new tab).

What can go wrong besides liquidation?

Several risks sit alongside the benefit of keeping the asset, and each depends on the contract:

• Custody and counterparty risk. The borrower may rely on a lender or custodian to hold, segregate and return the collateral, and the loan is only as good as that party's ability to do so.
• Rehypothecation. A contract may allow the lender to reuse or lend out the collateral, which adds exposure that the borrower doesn't control.
• Bankruptcy. Recovery, priority and customer-asset treatment depend on the entity, the agreement, the asset type and governing law, and bankruptcy court records show how any given case turned out.
• Variable rates and fees. A balance can grow even when the collateral holds steady.
• Tax events. A forced sale, a collateral transfer, a canceled debt or a sale-like structure can create gain, loss or income.

Each of these has its own mechanism, and a provider's current written agreement is the place where it's spelled out.

What can a reader ask before signing?

Before signing an SBLOC, investors are urged to understand how the agreement affects their holdings, maintenance requirements, tax consequences and other costs (opens in a new tab). These questions put that into practice:

• Which assets qualify, and can eligibility change?
• What initial and maintenance loan-to-value limits apply?
• How much notice follows a maintenance call, and can the firm sell without contacting the borrower first?
• Is the loan recourse or nonrecourse?
• What rate changes are possible, and what fees apply?
• Can the collateral be rehypothecated?
• How is the collateral treated if the lender or custodian fails?
• What tax forms and transaction records will be provided?
• How will the loan be handled at the borrower's death, and who is responsible for repaying it?

For securities-backed credit, FINRA is the place to check how an SBLOC works. For federal tax, the IRS pages linked above are the source, and a tax professional can apply them to a specific situation. For life-insurance policy loans, NAIC (opens in a new tab) and state insurance departments are the reference points. State licensing, lending, insurance and securities rules vary, so the relevant state regulator can confirm what applies.

Frequently asked questions

Can a lender sell the collateral without asking first?

Yes, if the contract and applicable law permit it. An SBLOC agreement can allow a firm to sell securities (opens in a new tab) after a maintenance call if the borrower can't add collateral or repay. Whether the firm must contact the borrower first is a term of the agreement.

Does borrowing avoid all taxes?

No. Loan proceeds generally aren't gross income, but sales, liquidations, collateral transfers and canceled debt (opens in a new tab) can create tax consequences. Borrowing mostly postpones a sale.

What happens to the loan when the borrower dies?

The debt generally remains an obligation of the estate, handled through estate assets, collateral, repayment or refinancing. A new basis for inherited property (opens in a new tab) affects the tax on a later sale, not the amount owed. A separate guide explains how probate handles an estate's debts (opens in a new tab).

Are crypto loans automatically tax-free?

No. The result depends on the transaction structure and on whether collateral is sold, exchanged, transferred or liquidated. Under IRS digital-asset guidance (opens in a new tab), a reporting exception for certain lending transactions doesn't decide how the transaction is taxed.

Next step

For how collateral, loan-to-value, interest and repayment fit together in Bitcoin-backed loans, and for the related guides on liquidation, custody, taxes and lender checks, the Bitcoin borrowing series is the place to continue.