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The Margin Loan – A Tax Strategy You May Have Missed

Oftentimes, new clients come to us after realizing they or a previous financial advisor missed a crucial action step that would have maximized their tax savings. One such situation recently occurred for a client who was not told about the little-known benefits of a margin loan until they met with our Storen Financial advisor.


What is a margin loan?

“Margin” primarily refers to the collateral investors must deposit to cover the credit risk posed to the broker or exchange. Thus, a margin loan can enable you to borrow against the securities in your account as collateral and use the money for other major purchases. (Click here to learn more about margin loans.)


This Client Might Have Avoided Capital Gains If…

A new client came to one of our Storen Financial advisors with questions about a particularly messy tax situation. Their previous advisor at another firm had distributed a substantial amount of money from their nonqualified account in order for them to purchase a vacation home. Because it was a nonqualified account that the advisor pulled from, the client was then required to pay a substantial amount of capital gains tax on the home, much to their surprise.

Following this, the client sold the home a year later, upon which they made money from the sale. While this may have seemed like an advantageous move, they then had to pay capital gains tax on the property and on the money from the sale. For example, say the distribution from their nonqualified account amounted to $600,000. They then bought the property for $1 million and sold it for $1.5 million. Now, they must pay tax on the $500,000 earned from the sale and the original $600,000 distribution from their nonqualified account. This excessive tax could have been avoided if they had borrowed against their account for a short period of time using the margin loan. Then, they could have simply paid the necessary interest, received the money needed, and not incurred all the hefty capital gains taxes.

Some advisors, without proper knowledge of tax code, can make you money that you wind up paying back in tax. Because other advisors are not registered tax accountants and therefore are not qualified to dole out tax advice, they’re more susceptible to missing these minute details. Additionally, many advisors are unfamiliar with tax-saving strategies like the margin loan rule because they do not study the IRS tax code.


At Storen Financial, our Advisors regularly study complex tax laws and undergo rigorous training through Ed Slott’s Elite IRA Advisor Group. We want you to understand our tax-saving strategies for building and diversifying your portfolio. For that reason, we happily sit down with clients to answer your toughest questions and help you spot strategies you may have missed, with the goal of instilling the confidence and knowledge you need to place your trust in our team and what we do.

Have questions? Or interested in meeting with our Storen Advisory team? Click here to contact us now. Or click here to learn more about our Financial Planning Investment Services.


Blog by Greg Storen, MBA – President/CEO, Advisory Services Director

Learn more about Greg and the rest of the Storen Financial team here.