Short answer (Dusty Lloyd, Orange County mortgage broker, October 2026): It depends on how long the money is needed. Selling $200,000 of highly appreciated stock in California can cost a high-income client around $42,000 in tax. Borrowing instead costs interest for as long as the balance is carried. For a short-term need, borrowing often wins; for a long-term one, compare the loan rate with the portfolio's expected after-tax return.
A client needs $200,000 for a renovation, a child's wedding, or help with a family member's down payment. The default answer is to sell something. In California, it's worth running the numbers first.
We had a client who was looking to sell $200,000 in stock to payoff her $200,000 in credit card debt. Her Financial Advisor noticed that she had a large capital gain on this stock she had owned for 15 years and the market was down this year, maybe there was a better way? We were able to get a line of credit in 7 business days and avoid the Capital Gains Tax and instead she is able to pay down the line of credit as her stock portfolio grows. The math worked out and she was able to pay less tax on smaller stock sales (lower AGI) and sell as values increased. It more than covered the interest on the HELOC.
What selling costs
Say a married client sells $200,000 of stock with a $50,000 basis, for a $150,000 long-term gain. Federal tax is 15% or 20% depending on income. The 3.8% net investment income tax applies only above $250,000 of modified AGI ($200,000 for single filers). California taxes the gain as ordinary income.
For a client paying 15% federal, 3.8% NIIT and 9.3% California, the bill is about $42,000. Below the NIIT threshold, it's closer to $36,000. And if the client would otherwise hold the stock for life, heirs could receive a step-up in basis that erases the gain entirely.
What borrowing costs
Interest, for as long as the balance is carried. At a hypothetical 8%, $200,000 costs about $16,000 a year. Against a $36,000–$42,000 tax bill, borrowing comes out ahead if the client pays the balance down within roughly two to three years. Beyond that, the answer depends on what the investments earn after tax versus the loan rate.
The three options side by side
Sell investments | HELOC | Securities-based line | |
|---|---|---|---|
Upfront cost | Capital gains tax | Closing costs, often modest | Usually little or none |
Ongoing cost | Growth given up on the amount sold | Interest on the balance drawn | Interest on the balance drawn |
Speed | Days | Typically a few weeks (appraisal, underwriting) | Often days |
Main risks | Tax bill; selling at a bad time | Variable rate; payments rise when the draw period ends; lender can freeze or reduce the line; the home secures the debt | Variable rate; a market drop can force the client to add collateral or sell |
A pledged-asset line from the client's custodian is fast and simple, and it's often the advisor's first thought. The trade-off is market risk: a downturn can trigger a collateral call at the worst moment. A HELOC avoids that risk but takes longer to set up and puts the home on the line.
When a HELOC is the wrong answer
The need is permanent. A HELOC suits a bridge or a defined project, not an ongoing income gap.
The client can't comfortably handle a rising payment. Most HELOC rates are variable, and payments rise when the draw period ends.
The client plans to sell soon. Setup costs may not be worth it for a line that will close within months.
The investment has a loss or a small gain. Then selling may simply be cheaper.
Tax deduction: federal and California differ
Under current federal law, HELOC interest is generally deductible only when the money buys, builds or substantially improves the home, and only for clients who itemize within the $750,000 combined mortgage debt cap. California hasn't conformed: it still allows interest on up to $100,000 of home-equity debt regardless of how the money is used. The client's CPA should confirm how this applies.
Setting one up before retirement
A HELOC is easiest to qualify for while the client is still working. If a client opens one before retiring, the application should reflect their retirement plans, and they should know the lender can freeze or reduce the line if their finances change significantly.
Bring me the scenario
Send me the amount needed, how long the client expects to carry it, and a rough home value. I'll send back the borrowing side within one business day so you can compare it with selling.
949-371-5363 · dlloyd@promiseloans.com ·
Dusty Lloyd, Mortgage Broker, Promise Home Loans · NMLS #247106 · Company NMLS #2372318 · NMLS Consumer Access · Equal Housing Opportunity. No referral fees are paid to or accepted from financial advisors. The 8% rate is a hypothetical example, not a quote or an offer of credit. This isn't tax advice; clients should consult their tax professional.
No comments yet. Be the first to share your thoughts!