Nvidia and Apple Millionaires Pool Stakes into Exchange Funds

A growing trend among tech millionaires involves pooling seven-figure stakes in Nvidia and Apple into exchange funds to diversify their portfolios without selling a share. This strategy, known as an exchange fund, allows contributors to defer capital gains taxes by locking up their shares for at least seven years.

For example, a retired Apple engineer who holds $2 million worth of AAPL stock with a cost basis around $50,000 can contribute it to an exchange fund and receive a pro-rata slice of the pooled portfolio. The engineer would then own a diversified basket of stocks instead of just one ticker.

The provision that makes this possible is IRC Section 721(a), the partnership contribution rule, which states that a taxpayer who contributes property to a partnership in exchange for a partnership interest recognizes no gain. Exchange funds are partnerships, so 721 controls.