Back From Nashville: Ready To Rock & Roll
A couple of weeks ago, agents from Sotheby’s International Realty gathered at the Music City Center in Nashville, Tennessee, for the 2024 Global Networking Event (GNE). Beyond the inspiring speakers and the sharing of insights of both our brand and in our industry at the conference, the true highlight of the GNE was the intentional small-group gatherings that took place before and during the event. These intimate, high-powered meetings foster lasting relationships that bring value to both our clients and us. A strong sense of camaraderie and dedication to excellence is a hallmark of Sotheby’s International Realty agents. While we benefit from a prestigious brand, it’s our powerful connections with top agents around the globe that truly set us apart.
I arrived a few days early to maximize my time at various small-group events where I met agents from across the nation and deepened existing relationships. From the Coffey Cup Golf Tournament to my hosted Little Blue Book Magazine Luncheon, meaningful connections were made! This might be important to you if you or someone you know is considering buying or selling a home. I’ve cultivated a top-notch network of agents from California to New York and everywhere in between. I would be delighted to personally introduce you to a leading professional in any area you’re interested in. Remember, opportunities are still abundant, and having an experienced advocate on your side is essential to discovering them.
Below are three key ideas to consider for your real estate assets. Providing valuable information to my clients is essential to my business, which is why I have some exciting upcoming features on the horizon!
On a local level, we’re noticing inventory trending slightly down over the last week. We’ll keep a close eye on this over the next month ahead of the election and the upcoming ski season. Stay tuned for updates or reach out to me directly at (970) 471-5233 if you have any immediate questions.
1. What Is The SLAT Exemption?
A spousal lifetime access trust (SLAT) exemption is the portion of a grantor’s gift tax exemption that’s used to fund a SLAT. A SLAT is an irrevocable trust that’s created by a grantor to benefit their spouse or other beneficiaries. The grantor uses some or all of their gift tax exemption to fund the trust, which removes the assets from their taxable estate.
Did you know that tax exemptions are available, and the increased federal estate and generation-skipping tax exemptions are scheduled to sunset at the end of 2025? These include assets such as real estate.
The Concern
For HNW families, it generally makes economic sense to implement a robust estate plan and begin transferring assets (and any subsequent appreciation) out of their estates as soon as possible. However, it is a principle of trust planning that the grantor(s) may not have any retained interest in trust assets or else risk inclusion of some or all of their trust’s assets in their estate. It is commonly understood that in order to remove an asset from one’s estate, clients must give up future control or access which can raise the following concerns:
- Large irrevocable gifts may simply be emotionally difficult.
- What happens if a change in financial or personal circumstances causes a need to access trust funds (e.g., assets stretched thin by extreme old age, or a long-term care event)?
- What if changes in tax law make the trust unnecessary?
A SLAT can ease these concerns.
One Solution
A SLAT is a form of irrevocable trust that, when properly structured and managed, enables a married individual to gift their assets to a trust (removing it from their estate and that of their spouse) and still maintain indirect access to trust assets via a spousal beneficiary.
What A SLAT Accomplishes
SLATs are a flexible tool that help balance the often competing concerns of estate tax management, and loss of access and/or control over one’s assets.
2. 1031 Exchanges
Under Section 1031 of the United States Internal Revenue Code, a taxpayer may defer recognition of capital gains and related federal income tax liability on the exchange of certain types of property, a process known as a 1031 exchange. Courtesy of IPX1031 Exchange – Tracey Wilson and Danita Vigil (ask me for a personal introduction to them):
Seller/Exchanger has 45-days from the date of sale closing to ID replacement properties; and they have 180-days from the sale closing to purchase one or more of the ID properties. The sale of any real investment property is subject to capital gains recognition – which is about a 30% blended or effective capital gains tax:
- 15% &/or 20% on the appreciation (both tax rates may be applied in phases, depending on the amount of the gain and the taxpayer’s AGI*)
- +25% un-recaptured depreciation, referred to as §1250 gain, unless it’s raw land – there is no depreciation on unimproved land
- +3.8% ACA tax (Medicare surtax or Net Investment Income Tax, under §1411) above certain income thresholds (investment income above the taxpayer’s MAGI of $200K/single or $250K/MFJ)
- +4.4% State of Colorado
30% is the total, blended, or effective capital gains tax rate. For taxpayers in high-tax states, the total effective cap gains rate is closer to 40%.
But all of these taxes may be deferred under a properly structured 1031 exchange:
As of June 2024, there are three capital gains tax rates on the portion of the gain due to appreciation.
- 0% for taxpayer’s with AGI of: $47,025 or less for single, or $94,050 or less for married filing joint (MFJ).
- 15% for taxpayer’s with AGI of: $47,026 to $518,900 for single, or $94,051 to $583,750 MFJ.
- 20% for taxpayer’s with AGI of: $518,901 and above for single, or $583,751 or more for MFJ.
To defer all of the gain, and thus defer the taxes, the client needs to:
- Acquire suitable like-kind Replacement Property of equal-or-greater value than the Relinquished Property (buy equal or greater in value); and
- Reinvest all of the net equity (exchange funds) from the sale of the Relinquished Property into the Replacement Property (spend all of the net equity); and
- Obtain debt that is equal or greater on the Replacement Property than was paid off or assumed on the Relinquished Property (replace the value of the debt on replacement property).
Note: A reduction in debt on the replacement property can be offset with additional cash from the Exchanger. Stated another way, the value of the debt paid off on the Relinquished Property must be replaced with debt or cash placed on the Replacement Property.
As a practical matter, satisfying the first two rules – buying equal or greater value property and reinvesting all of the exchange funds – will result in the debt requirement being satisfied.
It is possible for the seller to do a partial exchange, either buying down in value and/or keeping some of their cash/equity, and paying the taxes on only that amount (called “boot”). Although they are called Like-Kind Exchanges, “like-kind” is actually very broadly applied: any real property (used for business or held for investment) can be sold and exchanged for any other real property (including: oil & gas, water rights, minerals leases, etc.) anywhere in the U.S.
The client can exchange into Vacation or Second Home types of properties and have some limited personal use and enjoyment of the property.
Lastly, if the exchanger wants, they can eventually move into the acquired replacement property (assuming it is residential in nature), and treat it as their personal primary residence – and later if/when the client sells it, some of their gain is tax free up to certain limits (it is a fractional amount of the limits under Section 121 of $250K/single and $500K/married).
3. Monetization Opportunities
There are still many various opportunities in the Vail Valley which is why it is important to engage a professional who is very knowledgeable and familiar with our area.
- Renting an investment property for a 1031 Exchange for a certain time period (which then has the opportunity to be changed into a 2nd home for more usage).
- Monetizing a second home to offset the expenses. We are seeing more people wanting to rent very high-end luxury properties (both renters and owners).
- Purchasing a home which needs some upgrading as many current buyers are leaning towards new and/or remodeled homes which allows great opportunities for someone to purchase a home which has back-end upside.
Welcome to ”Sweetwater Perch” – a lakefront oasis tucked away on top of a noll with sweeping 360-degree views in the quiet Sweetwater Ranch area. This is the only private property home available adjacent to the lake and where the outdoor enthusiasts and hunters have access to thousands of acres of National Forest. This retreat has occasionally been short term rented at $525 per night. Looking for a getaway for friends and family for all to enjoy? Paddle Boarding, fishing, hiking, bird watching, hunting, and more are literally minutes away. Your home with paddle boat awaits the new owner(s) of this charming home. Must see to appreciate! You won’t want to miss out on this unique property that is just 30 miles from the Eagle County Regional Airport and Costco.
NEW GROSS RENTAL PROJECTION OF $383K & ARCHITECTURAL REMODEL CONCEPT!
Welcome to this exclusive opportunity to own a single-family home priced at $7,950,000 which stands out as the only single-family home available under $8M in sought-after locations such as Vail Village, Lionshead, Vail Golf Course, and Glen Lyon. This home is situated just across the street from the Meadow/Open Space in Glen Lyon and close proximity to the Cascade chair lift. Convenience is key, as the house features an elevator with access to all levels, from the 3-car garage up to the primary suite level. Furthermore, there is lock-off potential with a separate living area, bedroom, bath, and kitchenette accessible from the garage, offering flexibility and privacy for guests or extended family. This home is move-in ready, and as a homeowner in Glen Lyon, you’ll have the option to place this home in the Grand Hyatt Property Management program, granting you access to exclusive amenities just minutes away. Take advantage of the World of Hyatt Benefits and elevate your living experience to new heights. Don’t miss out on this exceptional opportunity to start living the mountain dream.
Annual Ski & Snowboard Swap
VAIL, COLORADO
The 2024 Vail Ski & Snowboard Swap is the best place to find all you need for the upcoming winter. Products will include everything from alpine skis, and snowboards, to boots and bindings, and a large selection of winter clothing and accessories such as helmets, gloves and goggles will also be available for purchase.
8 Locals Move In To New Homes
GYPSUM, COLORADO
When all the pieces of a community work together — businesses, nonprofits, volunteer and new homeowners — families thrive. That message was loud and clear at Habitat For Humanity’s home dedication when eight families received the keys to their new homes. As these new neighbors and friends enjoyed the waning daylight, it was clear that community is built one home at a time.
