Breaking the Luxury Real Estate Cap Gains Tax Challenge with Julia DeLorme

Breaking the Luxury Real Estate Cap Gains Tax Challenge with Julia DeLorme

Julia DeLorme is one of the top luxury real estate agents. She was recently at the top 1% of Southern Beach Agents nationwide. She sold over $85 million dollars in luxury real estate in Hollywood Hills.

At a young age, she visits construction sites with her father who is a Hotel Developer. Julia has a well-rounded approach to buying and selling real estate. She found her way from advertising into 1031 exchanges, and then into residential real estate and she’s been selling residential real estate for 7 years. She worked at Sotheby’s and now with Douglas Elliman who is working with the Altman Brothers, one of the world-class top real estate brokerage firms in the world. She has a great hands-on approach with her clients to finding value and making sense of real estate.

 

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Breaking the Luxury Real Estate Cap Gains Tax Challenge with Julia DeLorme

 

Brett:

I’m excited about our next guest. She is out of Southern California and she is one of the top luxury real estate agents. In fact, she was recently the top 1% of Southern beach agents nationwide. She sold over $85 million dollars in luxury real estate in the Hollywood area, Hollywood Hills to be exact all the ways to this to the sands of Venice. She’s has a pretty cool background, I like that she grew up kind of in the business of investment real estate with her father in the hotel development business. She knows about 1031 exchanges, she knows about visiting construction sites and really has a great hands-on approach with her clients to finding value and making sense of real estate. Please welcome me to the show with me, Julia DeLorme. Julia, how are you doing today?

Julia:

I’m doing really well. Thank you for that amazing introduction. I am kind of amazing. 

Brett:

You are and we’re excited to get to know you a little bit more and find out more about your story. So with that, would you help our listeners,  tell us a bit about your backstory and your current focus.

Julia:

So I grew up with a dad who was a hotel developer like always visited construction sites heard him on the phone wheeling and dealing at a young age, I found my way from advertising into 1031 exchanges, and then into residential real estate and I’ve been selling residential real estate for I think I’m in my seventh year. And I was with Sotheby’s. Now with Douglas Elliman working with the Altman Brothers. If you’ve ever heard of a million-dollar listing, I work with those brothers and we do a lot of business and want to learn more about this. I can bring it to them.

Brett:

That’s amazing. For those who don’t know, and for those who want to know, tell us a little more about the Altman Brothers because I think they’re one of the world-class top real estate brokerage firms in the world, right?

Julia:

Yeah, we’ve sold as a team, I think almost 5 billion to date. Last year, we sold about 500 million. Just last month, we sold 130 million, like, I test a lot of that to obviously the market and the market is definitely on fire, but also,  the show, the exposure, we don’t just sell in Los Angeles, we’ve got multiple offices all over California. And yeah, we do a lot of business.

Brett:

That’s amazing. So we’re gonna dive into that here in a few minutes more about how you help your clients create and preserve more wealth, and what kind of makes you guys separate from your competition. But before we go there, I want to help our listeners get to know you just a little bit more.  I believe we’ve all been given certain gifts, Julia and these gifts have been given to us to be able to be a blessing and help to others. So I want you to kind of reverse go back to maybe it could be the college days, it could be the high school days. I want you to think about that strength or that gift that you believe you’ve been given. And one of those may be one or two strengths, what are they? And how do they help how you help people today?

Julia:

So I think that this is like therapy one on one. So I guess I mean, I love people, I love understanding what people need so that I can be of service and love. I love sales. I love advertising. I love marketing. I just like putting the pieces together. I don’t know, I mean, it just always sorts of come naturally. For me. I love advertising and marketing too. So I spent a good amount of time doing that working for Fox, ABC, selling TV commercials on a national, regional, and local basis. And so I take all of that marketing expertise, and I put it into my listings, and how I sell, how I position a listing and a product, it’s really no different than any other product that you would sell.

Brett:

Yeah, that’s great. That’s fantastic. What was it like growing up on the job site, with your dad in the hotel development business and how do you think that helps you to help your clients today?

Julia:

So intense, a lot of stress, a lot of different people that you’re talking to. You’ve got to influence certain workers to get things done on a time crunch. It’s just managing a lot of people and still staying calm and being that voice of reason in the chaos. I think that’s probably why I gravitate to clients that are looking for a lot of solutions, whether it’s tax options or understanding different parts of construction, what it might cost, what it’s going to take,  knowing how to identify foundation issues with cracks in the walls, things like that.

Brett:

How do you think the real estate, either post COVID world or even just some of the higher net worth clients that you serve, how important is it to be more than just someone who sells real estate, but really, they’re kind of bought into their financial,  I call it a dream team, right? Whether it be navigating or looking at strategies like deferred sales trust, 1031 exchanges, development, construction,  doing the fix and flips. I know, you have a focus on that as well for helping people. Yeah, I think you say squeeze the juice out of the deal. So talked about that. Talk to us about how important that is, for those on your team and for those you serve?

Julia:

I think it’s everything. I think you can’t just be a great looking face that puts a yard in the sign these days, whether you’re representing buyers or representing sellers, I think that you need to be all of it, you got to be all of it, especially with, changing political climate, understanding who’s in office, and how that affects different laws and props and, and how that shapes the market.  We had a couple of important props that passed last year that is going to shake up the real estate market in California this year, it’s exciting, there’s going to be a lot of new inventory. At the same time,  people over 55 Plus can move now three times and take their property tax basis with them, which is unbelievable. There’s just some new freedom for different demographics. It is just exciting, you should know all of that.

Brett:

Yeah, absolutely. And it helps your clients add more value, and it helps to serve them better. What’s the most rewarding part of what you do?

Julia:

Oh, my gosh, I love it so much. I like just nerd out on this stuff all day. Like it’s not even like I tell my assistants like they’re sitting back there right now, like, as long as you’re having fun with what you’re doing, it doesn’t feel like work. I just love the people that I get to work with. They really color my life.  I get to have different opportunities meeting different big people like that, rub elbows with some other big really people and seeing their beautiful home. It’s all very exciting and rewarding. And like the biggest reward is when you sell that house and you’re sitting with your clients with the bottle of DOM, which I just did the other day. And you can just see how excited and happy they are like, that’s very gratifying for me. 

Brett:

That’s amazing. Yeah, it’s a job well done serving high net worth clients, solving problems. And being a part of something bigger than yourself with an amazing team that you guys have there. That is so cool. So now let’s dive into some practical ways in which you’ve found to add that value as it pertains to the outside of the initial thought of just selling the real estate. It’s the exit planning and a part of it, you reached out to me a couple of months ago, and got to know you a little bit briefly. And as a part of that, the big challenge is a high-end primary home, sometimes that had been highly appreciated. So walk through just that challenge that you find, perhaps at some of your clients are facing, what does that look like and feel like for them when they’re looking at oh my gosh, I’m gonna sell my house for 15 million bucks. But I might be paying 123 to $5 million tax.

Julia:

Yeah. So I found you, just to your listeners know, on a podcast, and I’m like, wow, this guy is really leaned in, he’s articulate, he’s very smart. When I worked in 1031 exchanges, we didn’t really talk much about DSTs. We just use them to sort of round out a 1031 exchange. And I never knew that it could be the only solution that you need for a primary residence to take their capital gains and defer it and put it into another property that was mind-blowing for me to understand that concept, which I learned on the podcast that you were on. So yeah, I found you. We’re having this conversation now. But basically,  I meet a lot of older folks that have been in our homes for years. I mean, the Beverly Hills flats, like if you bought 20 years ago, you probably bought it for less than a million dollars. And now if the teardown, it’s worth at least 7 million, maybe more 10, 11, 12. I’ve thought a big lot. So we’re talking about huge gains. And on top of that, too, it’s also the tax problem, the property tax problem have they are to buy a new property, can they afford those property taxes and that sort of that second piece, which changed last year, which is why I’m sure you’re extra busy right now because now you’ve got two things working in tandem. Being able to defer your capital gains on a primary residence and take your property tax basis with you. It’s like a golden ticket, guys. So just a lot of people don’t know about these things. They don’t know that they have options. I know you said on your podcast that this is like, what 400-year-old tax law, IRC code, whatever it is, you refer to it.

Brett:

IRC 453 is the code and then it goes back to my 90-year-old tax law. What’s interesting though is it works for primary homes versus just the 1031 exchange works for an investment property. By the way, I’m a realtor and commercial real estate broker who really start in 2006. And so we knew about the 1031 exchange two years ago, but we didn’t know that the deferred sales trust was an alternative that could work for primary homes or investment real estate, works for both. And the biggest thing is they don’t have to feel trapped in their houses like wait, forget, we just did a deal on Palo Alto high-end,  Silicon Valley home, but an $8.3 million sale. And that particular client, he was looking at a huge capital gains tax, and he could not qualify for the 1031. By the way, the 121 exclusion, if you live there to the last five years, you got to 50 single 500 married. But beyond that, you’re looking at tax, which a 1031 does not qualify for. So you’re exactly right. When you mix the deferred sales trust be able to sell in a high-end primary home with Prop 19, which allows you to transfer your tax to the next deal. You’ve got a perfect opportunity to take advantage of relocating downsizing, diversifying your wealth, as well as tax deferral. So any thoughts on that?

Julia:

When I tell people about this opportunity, they don’t believe me and this is part of the reason why we’re doing this Podcast. So it’s like you’re living, breathing proof of  Brett and we are having this conversation, that this is an option for you. I just want to get this out there to more people, because I think it could change people’s lives. I think it’s extremely powerful. And what people should tap into it before the government catches on and changes it.

Brett:

Yeah, let’s talk about that. Find me the first question and maybe you can ask me some questions that maybe your clients might have. But the first one would be,  it seems like it’s too good to be true. Or it seems like the government would shut this down. Are we doing some kind of weird tax avoidance thing. And it’s actually the furthest thing from the truth. In fact, the IRS has looked at this over a dozen times all no change IRS audits, the biggest deals actually in Southern California as $125 million deal. And that one was audited as well. And no change, no issue. And that was one I think, was over 10 years ago. So it’s been tried and tested. Thousands of closes now, billions under management, I think last year alone over December, the gross sales volume of total assets over $2 billion. So there’s no pending litigation above me on that. My business partners, the attorneys, stand behind their work, meaning they provide what’s called audit defense. So we’ve already kind of gone through that, in fact, there’s a recent deal for a gentleman as a $45 million primary home sale, and actually in California, and he hired three attorneys and heat. They’re like, wow, one of the biggest law firms in California they hired and they said, We don’t know if this is gonna work. We don’t know if it’s too good to be true. But they looked at the paid him like $1,000 an hour, okay, racked up over $100,000 worth of legal fees. And that one closed, I think four months ago now, and no issues. They said up works, where it’s illegal, and we gave it our blessing. And he moved forward. So it’s really capturing those deal stories, helping people understand what it is, what it’s not, and then giving them the resources to understand it knowing that here’s the thing you need to do before the closing of escrow because nothing is of the essence. So what other questions or thoughts do you have on that, or questions that clients might have?

Julia:

So what I’m hoping we can do is like, do an example where let’s say it’s a $10 million sale, and they are buying a $12 million purchase. And we could just like walk everybody through that how that works, what you normally would be paying, right, maybe the capital gains aspect of that, that difference. And then also property taxes, if you wouldn’t mind touching on Prop 19 and how that’s changed then, and what they would?

Brett:

Yeah, we’ll start with that. So we’ll use a $10 million sale and let’s imagine and you said, the Beverly Hills flat. We bought it for a million dollars, 15, 20 years ago. So their basis is a million. Now let’s imagine they’re married and so they get that 121 exclusion. So what I like to do is add that 500,000 so now they’re at 1.5 million. Now, it’s also imagine they put in some improvements over the years, right? They may have done some room additions, they may have done some,  expanding it, let’s imagine they put $500,000. Now, their basis is 2 million. Okay? So we start there. Let’s imagine they have no debt on the property. And let’s use the 10 million minus the 2 million which would be about an $8 million gain. Okay. Now in California on $8 million. You’re looking at approximately 33%. Okay, that’s state about 13.3. And that’s federal about 20. Okay, so that’s how we get to about that 33%. So that’s two $2.64 million. So that is the liability. We always start there. Because we say, okay, you have that if you sell tomorrow, and you do nothing, you’re going to owe 2.6.  $4 million? Would you like to defer it? And most people say, absolutely, that makes sense. Okay. Right. So what do we do? Well, we set up a trust. Instead of having all of that $10 million, Julia sent to your client, we’re gonna have it sent to the trust, it’s kind of like the way Qualified Intermediary works or even like, and that’s a 1031 exchange that is known as, or even like a 401k, or an IRA.  if you make, let’s say, Real Estate Commission or someone makes W-2 income, they can send some to an IRA or to a 401k. And it’s in a tax deferral state of which it can be invested and it can grow. Well, that’s kind of the same concept here, instead of sending that 10 million all to your seller, we’re going to set up the trust and the trust is actually where the funds are going to be received.

Julia:

So like, you can’t take constructive receipt, right? When you take constructive receipt of income, that’s when it becomes taxable. So in this event, like would you have to create a whole new trust that’s unique to this DST, or if it already trusted that suffices.

Brett:

Yeah. So it’s a brand new deferred sales trust. And this is a great point, it’d be a part of your living trust, okay. So your living trust is like the big thing that helps to pass assets through probate, to your heirs, or whatever. So you don’t have to worry about all of the legal stuff. The deferred sales trust, what you’re actually receiving in this scenario is what’s called a promissory note. So you become the lender. So back to the story, it’s 10 million bucks, instead of taking all the 10 million of constructive receipt, you’re simply going to get a promissory note that the trust owes you the 10 million, okay. And the buyer, by the way, is ultimately gonna buy the asset from the trust, this happens all in like a simultaneously closed escrow, we’ve done 1000s of these, okay, but essentially, Julia, if you list the property, okay, and then a buyer is procured for the full 10 million, and the trust jumps in right in between right before close of escrow. And what happens is the trust actually ends up buying the asset from from your, your client, and then selling it to the buyer. And the buyer takes title, he’s gone, and the funds are now sitting in the trust. This is how we maintain non-constructive receipts because your seller hasn’t actually received anything, they receive what’s called a promissory note. Think of it like a chairman of the bank, they became the bank and what’s owed to them is the 10 million plus a rate of return. 

Julia:

Are you the trustee to the trust with, this a designated? I know you said QI, which is what we use in 1031. exchanges. But who is the trustee to the trust and who’s helping facilitate that? 

Breaking the Luxury Real Estate Cap Gains Tax Challenge with Julia DeLorme

Breaking the Luxury Real Estate Cap Gains Tax Challenge: “Ninety percent of all millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments combined. The wise young man or wage earner of today invests his money in real estate.” – Andrew Carnegie

 

Brett:

So that’s me, right. So I’m a third party, unrelated trustee, which is very important, you can’t have a related party, you can’t even have like somebody that you didn’t really even know or you have any control over or employee, it’s truly got to be the business purpose, third party unrelated. And so when that so I couldn’t even do this for my own brother or my own dad,  it has to be an unrelated party. So I’m a trustee, exclusive trustee for the deferred sales trust. And so we help to coordinate that and provide those services. Now, the next question becomes, well, who is the trustee? Right? Like, how do I know you can’t take that 10 million and you’re gone? Well, we have protections in place, we have banks,  we have a bank, actually in Irvine, the multibillion-dollar bank that holds the funds, we open up a bank account in the name of that trust, that’s where the funds first go. And then the funds don’t move without the secured lender, the seller,  their actual signature, written signature, and note nor anything invested without their signature. So we have all those protections in place, but my role is to be the trustee over the trust. And then the client receive the 1099 based upon the income they receive off of the trust. And so most of our clients, they say, Okay, this is cool, I have 10 million, right versus about seven and a half. Because remember, in the beginning, it was about 2.6 million, we’re gonna save that, okay, cool. Got that full $10 million. And that’s producing,  it’s can we invest in investment, real estate, it can be put into stocks, bonds, mutual funds, and hopefully it’s, it’s producing a return, we’re gonna shoot for about 8%. net of recurring fees, we’ll talk about fees in a minute. And then we try to simply have them live off of that right now. They’ll pay tax as they receive the funds, which is, by the way, what the IRS likes because they’re actually getting,  the tax off the income of the trust. And then if they dip into the principle to pay capital gains tax as they receive it, but most of our clients will set up these structures his interest only over 10 years, and every 10 years, they can renew for 10 years to renew for 10 years, and they can pass it on to their kids and they can keep it going as well. And so the idea is to live off the full amount, right versus the seven and a half amount. 

Julia:

But you can also take those proceeds and you can purchase another primary residence with that?

Brett:

Let us pause there. So there are some restrictions. So this is the part where, if they need or want any of the funds for the primary home, they would need to cancel out, because what the government doesn’t want is the same thing as 1031. They don’t allow you to 1031 into a primary home because they don’t consider that business or investment purpose. That’s personal property. So you are absolutely allowed to cash out of all or some of that 10 million and use that for the downpayment to go buy your new house, okay? A first option or B second option, we can refinance before close of escrow. Okay, and up into the basis, here’s the key we can’t get above the basis. Remember I said the $2 million basis was there. So we said, well, Brett, they need a, they need a $2 million down payment for this next house they want to buy, okay, well, they can refinance up into the basis. And then that’s tax-free money they can use for a down payment. And then they can sell and put the 8 million into the trust and still defer the 2.6. But if you say Brett, their basis is too low, then that is one of the limitations, right? So we can’t use deferred sales trust, once it’s in the funds to buy a personal now, you can use the income off of it to qualify for a loan. In fact, I’m doing a deal right now for a deferred sales trust client in San Luis Obispo. They’re buying like a $1.2 million condo by the beach. And it’s cool for them. And they qualified for that loan on that property based upon the payments from the trust. So it helps you qualify for loans. But you can’t use the funds inside of it to purchase it tax-deferred, you would just cash out and buy it. Does that make sense, Julia?

Julia:

Yeah, it does make sense. So basically, you’re using it as qualifiable income to finance your purchase with a conventional lender.

Brett:

Precisely. 

Julia:

And you could still take the amount of the basis as a down.

Brett:

Yeah, you buy to cut out there, I think the question was, you can still take the amount of the basis for a down payment? Yes, you can take the amount of basis if you refinance before close of escrow. And you can pull that cash out or cash-out refi. And then you can use that for the down payment. Having a few technical difficulties here. So see, if Julia hops back in, she may need to hop out and then hop back in. And let’s see if she can hear me just refresh your screen. And that should come back in. But that is part of the awesome things about the different shows. By the way, while we’re waiting for Julia to get back on, you can go to capitalgainstaxsolutions.com. That is the website for the deferred sales trust to learn more about that. You can also search capital gains tax solutions on YouTube as well, to learn more about that. And what’s the next most frequently asked question, I’ll just dive into that. Typically what are the fees? Well, the fees for the deferred sales trust, are about 1.5% of this gross sales price on a one-time fee. And that pays to the tax attorneys who create the structure and they provide legal audit defense for the life lifetime of the trust. And then the next fee is the recurring fee to the trustee. And the financial advisor. That’s my company, although the financial advisors, my business partner, and he manages the funds. And that’s about one and a half percent give or take, depending on how and where the funds are invested. There are some miscellaneous fees like a tax return fee, but here’s the thing, it’s if you’re looking at a $2.6 million gain, I’m sorry, a liability right on that $8 million gain. Then we look at it we say okay, you can pay that fee, or you can do the deferred sales trust, and hopefully out, earn the fees that you’re paying, you would have paid anyway. Right and then earn interest on that. So the math typically works. 

I’ll just tell you a deal story. So there’s another deal that closed in Newport Beach. That was a $26 million deal. And they needed to sell and this couple was failed. with about a $6 million liability, so they’re right on the ocean big property. And they were able to defer the tax very happily. Another deal I recently did was in the south of Santa Cruz on the beach, and that was a rental property and we saved, we’ve saved the failed 1031 exchange. So this, the funds are actually with the Qualified Intermediary. They had it for an Airbnb property, they bought this product for like $980,000. And 20. Some years ago, they sold it for about 8 million. And they had about $2.5 to $2.6 million liability,  big tax, they paid off their debt, their debt was around 1.9 pay that off. So like the 6 million was sitting with the Qualified Intermediary, they couldn’t find an exchange that made any sense. And they moved it. So we saved their failed 1031 exchange. So it’s a rescue plan. It’s a good alternative for the 1031 exchange. Now, we got to make sure you’re working with a Qualified Intermediary that’ll allow you to do that. And we have those strategic alliances already lined up. So again, you can go to capitalgainstaxsolutions.com to learn more about that. Looks like Julia is back now. And here she is. Julia, how are you?

Julia:

Sorry about that,  trying to use a light and it like literally lighting my computer on fire. My laptop just shut off.

Brett:

Yeah, I mean, that you’re on fire. The interview was going so well. And it just couldn’t handle all of the value that we were adding. Is that right?

Julia:

I guess so.

Brett:

Oh, cool. I wouldn’t be so I already covered that with him while you were gone. And I went into a couple of deals, stories. But what other questions do you think your clients might have or potential sellers that I could answer for you?

Julia:

Yeah. So do you require a certain amount to stay in this?  I guess 8%. I think it’s a guaranteed return on the funds that are sitting in the trust and that they’re being invested in? Where are those being invested in and who’s managing that investment?

Brett:

Great question. So where the funds are invested and how do we produce that return? So first off, it’s not guaranteed, right? So nothing’s guaranteed. However, we do work with some of the best financial wealth managers and investment, real estate, syndicators, operators, we believe in the world, like some of the really the best. And our goal is to help build and be a part of your dream team. And a lot of your high net worth clients already have a dream team, that’s great. We want their input and their thoughts. And they can definitely oversee and take a peek at what the allocations are. But the financial advisor would manage the funds, he actually used to pay for the 40, Niners. And he manages the wealth for lots of high net worth, folks, he’s actually in Dana Point. Okay, so he’s in Southern California as well. And so everything’s mathematical. So we’re not guessing here, what we do is we have the clients fill out what’s called a risk tolerance questionnaire. And they do that before the deal is even closed. And that risk tolerance questionnaire will determine how and where the funds are invested,  questions like what’s your risk tolerance for for stocks, bonds, mutual funds,  what, what’s your risk tolerance for the market going up or down? And these different questions like that there are no wrong answers, but based upon those answers, a score is determined. And then based upon that score, an interest rate is determined. So most of our clients fall into that 8%, over 10 years net of recurring fees, some are pulling seven or six if they’re, if they’re more conservative on their investments. But let’s just use the 8% as the number and it’s compounding. So in this scenario, if we use the $10 million sales, and imagine they were free and clear,  they pay the initial closing cost, right? And then they’re paying and then you’re looking at the rest of it going into the trust. And and and and now you’re looking at trying to earn 8%. Now, where and how the funds invested? Well, an allocation is presented to you and these are some of the biggest companies in the world.  Costco,  Netflix, Apple, Google, S&P 500, can be stuff like bonds, it can be stuff like mutual funds. And that’s presented, but what I like best, I’m like, kind of like you, Julia, I grew up in the business of real estate with my dad investment, real estate, and development as well. And so my love is multifamily value add, or mobile home park or senior housing out of California, places that are like Texas, or Florida or Tennessee, that are really growing and jobs. A lot of people are going there. And you’re having huge like Tesla, I think Tesla Oracle, and HP just announced they’re all moving to Austin, Texas, places like that where you can find some of you can buy low, you can increase the rents by value add repositioning of the units, and then you can get a big profit. However, here’s the cool thing. You can also go into hard money lending, but nothing is moved or nothing is invested until the client approves it. 

Julia:

Obviously,  these high net worth clients, have their own people right in their corner. So how does that work? Could they work in tandem with you? Can they actually Manage and oversee the allocation of funds and investments, or did it have to work in tandem?

Brett:

Great question. So if they join us, as a strategic alliance, and then if they bring the clients of their own clients, and absolutely, so we work with thousands of advisors across the US, including financial advisors, luxury and commercial brokers, real estate brokers, Business Brokers, CPAs tax attorneys, so we have a whole marketing system, and a whole CRM system for that. So yes, if they want to join us, they absolutely can, in fact, my brother in law from Morgan Stanley, he just left Morgan Stanley, and part of why he left is because they weren’t thinking outside the box. And they weren’t allowing this type of structure for them. He’s now Raymond James, and they can do it just fine. So I always say that with the people that you’re with, they may or may not offer certain things. So you got to get with us first, if you get with us first and then yes, you can manage the money on behalf of your clients. If that makes sense. If you come directly to us, your client, let’s say Julia, and with us then it would be the financial advisor. By the way, he’s the co-founder of the deferred sales trust. And he knows it better than anybody. And so that would be that now, if he managed the money, can they oversee it and make sure that everything is going well? Absolutely. Your client is welcome to share that information and see, hey, what do you think of the allocation?

Julia:

I have a couple of questions about that. So I don’t want to put you on the spot. But what are your fees for managing funds? 

Brett:

I actually explained that just about five minutes ago. But real quickly, it’s 1.5%, based on the gross sales price, and then about 1.5% recurring based upon the assets under management on average. Okay, so now, depending on the size of the deal, right, those can be a little bit higher, a little bit lower. But that’s generally speaking, so like on a $10 million dollar deal, right? It’s 1.5% or so on the gross sales price of the first million 1.25 on the 9 million above, and then whatever it gets netted into the trust after debts paid off after your commissions paid, right after the attorney t fee was paid. That’s what’s accounts under management. And then that’s about one and a half percent, depending on the size of the deal. 

Julia:

So now, if they wanted to use a deferred sales trust as a temporary solution to just make a little bit of money until they find that new residents, whether or not they end up taking out more than the stepped up basis and obviously, they’d be paying probably capital gains tax on that difference of 32%, whatever it is, can they do that?

Brett:

Absolutely. The beauty of deferred sales trust, if the investments are liquid, but the majority of them typically are, depending on when they need the capital, we would just keep those funds liquid. I mean, we can literally just keep those funds in the bank. While you’re shopping for a house for the next 30, 60, 90 days.

Julia:

I’m gonna ask you, do you require a certain amount of time for them to be held in that trust? No, they can liquidate them almost immediately.

Brett:

Absolutely, yep, we just did that deal in Palo Alto for 8.3 million, and he was actually relocating to a different part and he bought a house, but it took him another 60-90 days to secure that house. Yeah, and then we just liquidated the trust for that amount nicely to pay the tax on that right and use that for the down payment and he knew that, so that was fine. It’s totally flexible. 

Julia:

They’re simply like a temporary tax shelter, which is very empowering if you don’t know what you’re going to purchase or what you want to do with that money. And at the very least you know that you can have your financial advisor work with you guys to make sure that you’re getting a good return on your money until that time

Brett:

Exactly.

Julia:

Okay, sounds really good. I like it.

Brett:

I know, exactly. Everyone who’s listening, if you’re hearing this and you’re a client of Julia, reach out to Julia, and then she can set up a time with me if you want to kind of check it out beforehand and kind of see what it’s all about you can go to capitalgainstaxsolutions.com and that will give you a free ebook there. We call it selling your business or real estate smarter. As a reminder, this works for not only primary homes and investment real estate, it can save a failed 1031 exchange. But it also works for businesses, professional practices, veterinarians, dentists, orthodontists, tech company sales, it also works for public or private stock. It also works for cryptocurrency. It also works for ultra-high net worth clients who are worth a lot of money and have state tax issues. Like, for example, we just did a deal in Colorado. It was a client with $25 million net worth, and they had about a $5 million sale of a property, and we were able to help them not only defer the tax, but move the funds outside of their taxable estate, which saved them 40% Julia, I don’t know if you realize this, but estate tax is separate than capital gains tax. And in fact, the stepped-up basis only applies to capital gains tax, it doesn’t apply to a state tax. So for this particular client, they had all 25 billion inside of the taxable estate and so by Moving that 5 million out, we saved their heirs 2 million in one day, moved it out 2 million in one day, which is pretty powerful. So just realize that we also don’t charge anything and less than if you do the deal. So we will help you underwrite the deferred sales trust, we will provide guidance and thoughts on your particular deal and see if it’s a good fit. By the way, our minimum is $1 million net equity and at least $1 million gain. So anything below that is too small, the fees eat up the savings, so at least got to have a million-dollar gain. And at least 1 million net proceeds after everything is paid off. That being said, Julia, any last thoughts for your clients who are considering the deferred sales trust for the first time?

Julia:

Can’t wait to share this video and get them to call you or rather have me help broker the deal. So you can do more of these.

Brett:

Bringing you this value, work with us together. You know as a team, we’re all team here show solace sell the property and but we’ll help you every step of the way again because we got to structure it inside of the deal before close of escrow. Very important with that. With that, everybody, we appreciate you listening to this show and being with us, Julia for those folks who want to find you where’s the best place for them to find you?

Julia:

You can find me on Instagram @juliadelorme. My email is julia@juliadelrome.com. And my website is juliadelorme.com.

Brett:

Beautiful love it. I want to thank you for being on the show Julia and sharing a bit about your story and your commitment to helping your clients create and preserve more wealth beyond just selling real estate but truly becoming their kind of financial partner with making big decisions and I want to thank our listeners for listening to another episode of the Capital Gains Tax Solutions Podcast. As always, we believe most high net worth individuals and those who help them they struggle with clarifying their capital gains tax deferral options, not having a clear plan is the enemy and using a proven tax deferral strategy. to sell your luxury real estate or other highly appreciated asset is the best way for you to grow your wealth and exit that asset please reach out to us at Capital Gains Tax Solutions if we can help you at all. We so appreciate you. Bye now.

Important Links:

About Julia DeLorme

Breaking the Luxury Real Estate Cap Gains Tax Challenge with Julia DeLormeJulia DeLorme was hand-selected by Josh Altman to join the Altman Brothers in October 2019 as a Top Agent at Sotheby’s International Realty on the Sunset Strip. In less than two years of selling real estate, she was recognized in the top 1% of Sotheby’s Agents Nationwide. Julia has sold over $89,000,000 in luxury real estate from the famed Hollywood Hills to the sands of Venice. She prides herself not on her sales volume, but her genuine interest in understanding her clients’ needs and working tirelessly until their needs are met.

Having built a successful previous career in Advertising, 1031 Exchanges, and visiting construction sites at a young age with her father in the Hotel Development business, Julia has a well-rounded approach to buying and selling real estate. She knows how to select the best flips, ‘fixers with juice’, and select quality investments. In general, she is well equipped to curate the best options to meet your needs from a financial and lifestyle perspective. As for the sale itself, her warm and welcoming personality does not preclude her from being a firm and highly effective negotiator.

Julia is available 24/7 except while she’s getting her beauty sleep and Tuesday night Kundalini Yoga with the world-renowned yogi, Tej.

 

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By Brett

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