Comment by panda88888

Personally I feel that by using an asset as collateral the person is essentially “realizing” the gain (the person is formally and contractually saying the asset is worth at least this much and using it to exchange something of value, even if only in case of default) and should pay capital gain tax for however much the gain was based on assessed collateral value minus the cost basis. And the cost basis steps up to the assessed collateral value.