Posted June 10, 2024 by James Billings
Are real estate transfer taxes impacting your ability or desire to sell a piece of property?
Hello, my name is James. Politicians around the world have been imposing transfer taxes, or stamp duty, on real estate deals. For instance, in Singapore, we’re looking at a 60% transfer tax; in London, it’s 15%. Most recently in the city of Los Angeles for commercial residential property, it’s 6%.
One of my long-term customers asked, “James, you understand this real estate title. Are there any loopholes or solutions to these transfer taxes?” Yes, there are. You need to read the instructions.
Like in any puzzle, I read the LA municipal code, and in section 21.92. It shows where the trigger is for the transfer tax, which is when a grant deed is recorded.
So, what’s a grant deed? A grant deed is a conveyance from one party to another and is also known as legal title. Legal title includes what are called a “bundle of rights.” You can split them apart or have them together, and the term that’s used is called bifurcation.
Understanding the Bundle of Rights:
- Possession – You have possession of the property; you can do what you want with it.
- Control – You have control over the use; you could rent it, occupy it, exclude people, or build a fence around it.
- Enjoyment – You can enjoy the property, sit out in the backyard, have a pool party, or put political signs on the front yard.
- Encumbrance – You can collateralize this legal title in exchange for a loan, sell an option on the property, lease the property, or create a remainder estate.
Practical Examples of Managing Legal Title Without Paying Transfer Taxes:
- With a Lender – When you get a loan against a piece of property, you sign a deed of trust which hypothecates or collateralizes a legal title in exchange for the loan.
- With an Option – You could sell an option on a property, allowing the buyer to have rights such as occupying, leasing, or improving the property.
- With Business Trusts – These can be used for title and you could split up legal title.
These are just a few examples of how you can share these rights with others and control the legal title. Now, think about it: if you did a regular standard transaction, say a $30 million transaction with a 6% transfer tax, that’s $1.8 million. Put on your thinking hat, look at and study real estate 102, figure out what instruments you need to use, and solve the problem.
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If you have any questions, please contact James Billings, founder and owner of TrustArte, at james@trustarte.com or 619-537-8625. Visit my YouTube channel for video content.