Tax season forces a decision that trips up millions of investors every single year across the country. You owe the IRS a five- or six-figure check, and your first instinct is to sell stocks or bonds to cover it.
The money arrives in your brokerage account in days and the bill gets paid, but you may have simply traded one problem for another. The sale could generate a fresh capital gains liability you will owe next year.
Bank of America’s Private Bank is now outlining a different playbook for investors who need liquidity during tax season, in a recent analysis.
Three credit-based alternatives to liquidating your portfolio for taxes
Bank of America’s analysis centers on three specific lending tools designed for investors who want tax-season cash without triggering a sale. Each option uses assets you already own as collateral, letting you borrow the cash you need at rates far below what credit cards charge.
How a Private Client Line lets you borrow against your investments
A Private Client Line, or PCL, lets you borrow against the value of eligible securities you already hold in a brokerage account. You pledge your stocks, bonds, or mutual funds as collateral, and the bank extends a line of credit based on their combined market value.
The appeal for tax season is clear. You get on-demand access to cash, generally within one business day of approval. You do not sell a single share, and you do not create a new taxable event that compounds your liability for the following year.
Key features of a Private Client Line
- No application fee, no annual fee, and no minimum balance requirement after the credit line is established
- Flexible repayment schedule, as long as required equity levels are maintained in the collateral account
- Interest rates that are typically lower than those of credit cards or unsecured personal loans
- Funds that can be accessed at any time after approval, making it useful beyond just April’s tax deadline
For investors with significant portfolios of publicly traded securities, a PCL gives you stability during tax season. It also preserves the upside potential of your holdings; your stocks keep earning dividends and appreciating while the credit line handles your tax bill.
Using a home equity line of credit to cover your tax bill
If you own a home with available equity, a home equity line of credit offers another path to generating tax-season liquidity. The national average HELOC rate sits at approximately 7.20% as of April 2026, according to the latest survey of major lenders.
“You have a lot of homeowners sitting on those pandemic-era mortgage rates, so they say, ‘You know what? Maybe I’ll stay in place, and I’ll renovate my home, or maybe do debt consolidation…That’s what we see a lot of homeowners doing in terms of gravitating to HELOCs,” said Bankrate Lead Insights Analyst Linda Bell.
That rate is dramatically cheaper than the 20%-plus interest you would pay on a credit card balance or the 12% average rate on a personal loan. For homeowners who need a five- or six-figure sum to cover federal and state taxes, the math favors a HELOC in most scenarios.
How a HELOC is structured
- Your total available credit is based on a percentage of your home’s value, minus any outstanding mortgage balance.
- HELOCs from Bank of America come with a 30-year term and a 10-year draw period, followed by a 20-year repayment period.
- You can convert some or all of the variable-rate balance to a fixed-rate loan option for more predictable payments.
- No application fees and no closing costs on lines up to $1,000,000, which removes upfront friction from the process.
Interest you pay on a HELOC may also be tax-deductible if the proceeds are used for qualifying purposes. Consult your tax advisor to confirm whether your specific use qualifies for the deduction, Bank of America advises in its analysis.
Custom lending for investors with specialized or illiquid assets
Not every investor’s wealth is tied up in publicly traded stocks. Some hold real estate, fine art, hedge fund positions, or other illiquid assets that traditional lending products cannot accommodate.
Bank of America’s Custom Lending program is designed for this exact scenario. A dedicated credit executive works with your financial advisor to structure a loan using a broader range of collateral than a standard securities-backed line allows.
What qualifies as collateral for custom lending
- Marketable securities, real estate holdings, yachts, aircraft, fine art, and hedge fund positions.
- Credit facilities are tailored to your specific time frame, cash flow needs, and collateral types.
- Credit executives make decisions at the local level, which the bank says results in faster underwriting turnaround.
Custom lending can help you retain cash reserves and potentially keep your investment strategy intact during a heavy tax year. For business owners who also owe personal and property taxes, this flexibility can prevent forced asset sales at inopportune times.
The real risks of borrowing against your assets to pay taxes
Securities-based lending is not a risk-free workaround, and Bank of America makes that explicit in its disclosure language. Before you pledge your portfolio or your home, you need to understand what can go wrong and how quickly it can happen.
Margin calls and forced liquidation
If the market value of your pledged securities drops below the lender’s required maintenance level, you may face a collateral call.
“The bank can force the sale or other liquidation of any securities or other investment property in the collateral account and, unless otherwise required by law, can do so without first contacting the account holder,” Bank of America’s disclosure states.
You do not get to choose which securities are sold, and you are not entitled to an extension of time to meet the call. A sharp market correction during tax season could leave you both owing on a credit line and absorbing realized losses you never planned for.
Variable interest rate exposure
Most securities-backed credit lines carry variable rates tied to a benchmark index like the Secured Overnight Financing Rate, or SOFR. If benchmark rates rise while you carry a balance, your borrowing costs will rise with them, reducing the strategy’s net benefit.
HELOC-specific risks you should not ignore
- HELOC funds cannot be used to purchase, carry, or trade securities, a restriction that limits how you deploy the cash.
- If you opt for interest-only payments during the draw period, the full principal remains due later at potentially higher rates.
- Your home serves as collateral, so defaulting on a HELOC puts your primary residence at risk of foreclosure.
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How selling investments to pay taxes can cost you twice
The fundamental problem with liquidating investments to pay a tax is that the sale itself becomes a taxable event. You pay your current-year bill, but you also create a new liability for the year in which you sold.
Long-term capital gains rates for 2026 remain at 0%, 15%, or 20%, depending on your taxable income and filing status. Single filers with taxable income above $545,500 will pay the top 20% rate on long-term gains, plus a potential 3.8% net investment income tax surcharge.
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Short-term gains on assets held for one year or less are taxed at ordinary income rates, which range from 10% to 37% for the 2026 tax year, the IRS confirmed in Revenue Procedure 2025-32.
For a household in the 37% bracket, selling $100,000 in short-term holdings to pay a tax bill could generate an additional $37,000 in federal tax liability alone, before state taxes. The IRS maintains detailed guidance on capital gains classifications and applicable rates on its official capital gains topic page.
Deciding which borrowing option fits your financial situation
No single lending product works for every investor, and the right choice depends on what you own, what you owe, and how quickly you need the cash. Here is a simplified framework for thinking through your options.
Questions to ask before you borrow against your assets
- How large is your tax bill? A five-figure bill on a seven-figure portfolio is easier to collateralize than a six-figure bill on a mid-six-figure account.
- How long will you carry the balance? Securities-backed lines work best as short-term bridges, not permanent leverage on your entire portfolio.
- Can you handle a margin call? If you do not have cash reserves to meet a collateral maintenance call, you risk forced liquidation at the worst possible time.
- What are the interest costs versus the capital gains taxes you would owe? Run the math on both scenarios with your advisor before deciding which path costs less over 12 to 24 months.
“Consult your legal or tax advisor for additional guidance on tax implications of current liquidity options and planning for future tax liabilities,” Bank of America recommends in its analysis.
Other IRS payment options you should consider first
Before you explore securities-based borrowing, review the payment tools the IRS already provides at no or low cost. These options work well for taxpayers whose bills are manageable but who need short-term flexibility.
IRS payment plans and direct alternatives
- IRS Direct Pay: A free electronic payment directly from your bank account, with same-day processing in most cases.
- Short-term payment plan: Available if you owe less than $100,000 in combined tax, penalties, and interest, with no setup fee for online applicants.
- Long-term installment agreement: Available if you owe $50,000 or less and have filed all required returns, allowing monthly payments over an extended period.
- Credit or debit card: Processing fees range from 1.75% to 1.85% for personal credit cards through IRS-authorized processors Pay1040 and ACI Payments.
Full details on all available payment methods are listed on the IRS payments page, including eligibility requirements and processing timelines for each option.
Planning ahead so tax season does not force you into a bad decision
The smartest move you can make for next year’s tax bill is to avoid being caught off guard by this year’s bill. If you routinely owe five figures or more every April, a proactive liquidity strategy can save you thousands in avoidable capital gains taxes.
Start by running a projection of your expected tax liability for 2026 with your tax advisor. If you anticipate a large bill, discuss whether establishing a securities-backed credit line or HELOC now, before tax season pressure builds, makes sense for your household.
Review your portfolio for any short-term holdings that would trigger ordinary income rates if sold. Moving those positions to a longer holding period before you need the cash can dramatically reduce your effective tax rate on any future liquidation.
Tax-season borrowing is not a permanent financial strategy; it is a short-term bridge designed to protect long-term wealth. Use it selectively, repay it quickly, and make sure the interest cost is lower than the tax cost of selling. Your future self will benefit from the discipline.
Related: Bank of America has blunt message on stocks and bonds for Q2