Excise Tax - any suggestions on dealing with it?
Ouch! 
I just spoke with a Real Estate Attorney here in Washington state and he told me about our excise tax on any conveyance of real estate. Being that I'm just getting started in this, I'm clueless. Apparently on any form of sale you have to pay 1.7% excise tax on the total purchase price.
So if I buy a house subject-to, where I pay the closing costs - that means I pay $3400 on a $200k house. If I then resell that house, I've got to pay $3400+ (since I'll sell it for more) again as the seller.
In other words, as far as I can tell, this takes all the money out of the deal for me! Apparently there used to be a loophole, but the lawyer said the legislature plugged it up. Does this mean sub2 doesn't work in Washington?
Does anyone have any similar situations in another state - ideas??
Has anyone been doing it in Washington - is there a trick to making this work???
Your thoughts are appreciated!!!!
DK
Derrick,
Thanks, I've already checked them out. The thing is, it clearly states in the WA tax laws that ANY transfer of interest in a trust, other than to a family member, is considered a sale of the property and excise tax is due. So as far as I can tell, the land trust thing doesn't get you out of paying it.
I don't know if the link will come through, but this is where I found the info:
http://search.leg.wa.gov/wslrcw/RCW%20%2082%20%20TITLE/RCW%20%2082%20.%2045%20%20CHAPTER/RCW%20%2082%20.%2045%20%20chapter.htm
That's the WA state legislature's site and it has the real estate excise tax laws posted there.
Sadly, the lawyer had another appointment run over time and we had to reschedule yesterday - so I didn't get to ask about it.
Hi DK,
I sent you a private E-mail with a PDF attachment from the WA Tax board.
I hope it helps answer your concerns.
Best of luck
John (LV)
You may have found something there! Thanks very much for taking the time. I've shot it off to the RE Attorney to see what he thinks. If it turns out to be a solution, I'll post the info here so that future newbie investors in Washington don't panic from my post!
Quote:
On 2002-10-28 23:11, jfmlv1950 wrote:
Hi DK,
I sent you a private E-mail with a PDF attachment from the WA Tax board.
I hope it helps answer your concerns.
Best of luck
John (LV)
DK:
Although I did NOT sens you a Private Email regarding 'LOOP-HOLES' available to you in WA...
I can definitely state that you (and other WA state REIs) should look into my previous post here on TCI...
Search: Equity Holding Trust/PACTrust as a sales Transfer Tax avoidance solution!
Take your potential Subj-to deals and structure it within a Land Trust using Benefical Interest as the'Buy-In' and secure the 'Future' Transaction.
Home owners are allowed to place their home inside of Land Trusts Title-Holding for Asset-Protection reasons.
This Title Transfer doesn't affect the Homeowner(subj-to Seller) in that the Land Trust has a PRIVACY MANAGER call the TRUSTEE!
The Trustee is bound by law not to reveal nor allow harm to come to the Beneficiaries of the Trust.
Also, the Title is protected from State and Federal liens, creditor & civil judgments and Bankrptcy/Divorce actions.
'Behind the scenes' transfers of Beneficial Interest and the Identity of the NEW (buyer) Beneficiaries will allow you to safely 'sell-subj-to' beneath the RADAR and scrutinty of WA's exise tax.
This is NOT EVASION---see your Attorney and have him to research GARN-ST. GERMAIN---the Equity Holding Trust(tm) and it's inherent protections (IMHO) allows you, as an REI, the MOST FLEXIBLE LEGAL TOOL to SAFELY SUBJECT-TO any home!
Hope this Helps!
Derrick Ali
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Derrick Ali,
Next time I send a private E-mail to someone I’ll make sure you receive a complete copy so you can see whether it was regarding LOOP-HOLES or not.
Just in case you REALLY NEED to know, it wasn’t, so I think your advertisement for your Equity Holding Trust (tm) is kind of premature.
But thanks anyway for trying to help
John (LV)
Derrick,
I did search for your posts, but the search brought back 1870+ results, so I don't think I found exactly what you were referring to. I did read a couple things
that had interesting tidbits.
Where can I find more details on Equity Holding Trusts - and using them with sub2 deals?
---
I think I'm going to meet with the RE Attorney and see what he can come up with, as well as investigate at the next REIA meeting here.
I'll post anything I find out.
Hopefully when I'm through paying to figure out how to do this, I'll still have a little cash to invest with!
Thanks!
DK
Question to the Gurus who have done this.
If I have a property in a Land Trust and my buyer has taken deed within the land Trust when my buyer gets financing to pay off the underlying mortgage on the property will the line of ownership/tax liablity of buy/sell be traced back to me. Can I end up getting a bill from washington state for excise tax from the beneficial interest movements within the land trust?
This question has been burning in my mind for some time now.
travisluedke,
According to the information posted by the Washington legislature, the excise tax is due as a result of transfers of interest in a trust. Thus, technically, you would owe the tax. However, the real question is - will they have any way of knowing, would they bother to look?
I'm meeting with my RE attorney today and I plan to ask him exactly this...
Will let you know if I find out anything useful.
When it comes to your buyer paying off the existing mortgage however, you should simply write in to your agreements that they are responsible for the excise tax when they refi. If it isn't paid at least once, then you are definitely going to be in trouble. The question is whether you can get out of paying it for your seller - if that's what you're trying to do in the first place.
DK
Quote:
On 2002-11-25 15:14, travisluedke wrote:
Question to the Gurus who have done this.
If I have a property in a Land Trust and my buyer has taken deed within the land Trust when my buyer gets financing to pay off the underlying mortgage on the property will the line of ownership/tax liablity of buy/sell be traced back to me. Can I end up getting a bill from washington state for excise tax from the beneficial interest movements within the land trust?
This question has been burning in my mind for some time now. <IMG SRC="images/forum/smilies/icon_eek.gif">
DK:
Goto: SEARCH ARTICLES for Equity Holding Trust or PACTrust or for Derrick Ali.
I believe the details of these articles can assist you withh what you and your Attorney need to SAFELY avoid WA State Excise Tax issues.
Aslo goto: www.LandTrust.net (discussion boards) and POST your Questions their so that the Land Trust Gurus can offer you more help!
Much Success!
Derrick Ali
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DK:
Members of our network do plenty of deals in WA State...and although I personally haven't transacted any in WA to date, I believe you always have to pay taxes on any transaction and the fact that an Interes inisde of a Land Trust is looked upon as a SALES TRANSACTION by WASHINGTON...the State has to PROVE or the Beneficiaries(all together) have to DIVULGE the presence of a SALE!
Transfers of Beneficial Interest within a Trust that is directed by a Beneficiary Agreement are 'SILENT' and not recorded.
So the State nor anyone else NOT a Party to the Trust would have a record of this Transfer.
Does this AVOID the TAX implications?
YES!
Does this ELIMINATE the Taxes due?
NO!
When the time comes to refinance and pay off the original mortgage(in your underlying deal w/the original Seller) and record a Transfer of Title(Deed)..then you would simply have your New Buyer pay the Excise Tax and any other related costs.
As far as WA State coming after a Beneficiary whom the may 'THINK' transferred a Beneficial Interest say 2 or 3 years earlier and failed to pay taxes then??????
This is a 'can of worms' in that first they have to have PROOF of this and in a true Trust no one beneficiary can act so as to cause harm to come to any other Beneficiary and further it is the job of the Trustee to 'Keep Private and Protect' all of the Beneficiary's assets and Interest held within the Trust.
I think this answers your question.
If you are looking to NEVER PAY ANY TAX then I'd say WATCH OUT for the FEDS my friend.
But if you are asking how to SAFELY, ANONYMOUSLY, and PROFITABALLY, use an Avoidance of the WA State Excise Tax, then:
I can confidently tell you (if set up correctly) a Land Trust is your HUCKLEBERRY!
Much Success,
Derrick Ali
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Thanks Derrick!
Actually, that's probably the most straightforward and complete answer I've had to the issue yet...and I think that's more or less what another investor I spoke with here in WA was trying to say (although I don't know if he was using land trusts.)
Hrmm.... now I have put the knowledge to use.
Thanks!
DK
Muchas gracias for the detailed and very clear explanation.
YW!
DK and Travis!
MUCHO SUCCESS!
Derrick
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