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Learn From The Expert – Capital Gains Tax With Brett SwartsI’m very excited because we all know it’s tax season. We all know that it’s an important time of the year for a lot of entrepreneurs and business owners. I am very excited to have our guest, Brett Swarts. Brett, welcome to the show. I’m so excited to have you on the show. Brett, I know it’s been quite a while since we’ve spoken. It’s been quite a few years. Tell me what you’ve got going on. What’s going on in your business and the latest and greatest? What can you share with us? 2022 was a great year, our biggest year ever, and 2023 is looking to be even bigger. There are two things in life that we find that never go away. You’ve seen the movie called Meet Joe Black. They talk about death and taxes. Death and taxes are the two things. We continue to help people get freedom when it comes to exiting highly appreciated assets and deferring the capital gains tax, eliminating an estate tax, and helping them to achieve preservation of their wealth and the creation of their wealth. It’s the same thing. We did write a new book. We had a new book that got released. I know. I heard. We’re going to give that a little later on for our readers. I see it in the background too. It looks great. I love the cover. Thank you. We’re proud to be able to have a few people like Kevin Harrington from Shark Tank and a few others that are smart people. They say, “Get in the room with smart people.” I got into a book with some smart people. I have a couple of chapters as well. We have multifamily syndication experts, financial advisors, economists, and the CPA for Tony Robbins in the book. It’s exciting to have an opportunity to write a book. Hopefully, it’s going to change some people’s lives and give them some freedom that they’re looking for. I love that. Can we reverse it a little bit? Before you staand trust to closing with millions rted your business, how did you even get into what you do? What’s your background? How did you get started? I fell in love with real estate at a young age in tax-a-fornia. Before it was called tax-a-fornia, it was called California those days, where business was invited. I’ve never heard that. My dad and my mom in the Bay Area, Silicon Valley, and East Bay area of Northern California, building houses, cashflow, development, rentals and saw and fell in love with real estate then had an opportunity to study and practice multifamily brokerage at a place called Marcus & Millichap. We learned about 1031 exchanges, investment, real estate, cap rates, IRRs, underwriting, and all the things that have to do with building wealth in an amazing way with real estate, which is still the best way to build wealth, but then we came into the 2008 crash and the things changed a lot for people with ways that they were building wealth because some lost half or everything because they were overpaying for properties which what I called the 1031 shotgun wedding. That became an opportunity for us to say, A) “What could we have done differently?” B) “Moving forward, what are the strategies to help our clients not to suffer this pain like they were suffering?” That’s when we discovered the way to defer capital gains tax not using a 1031 exchange. This literally changed everything, and we’re trying to get the word out to as many people as we can. During this time period, too, I wasn’t always easy. My wife and I now have five kids, but at the time, we only had one. I was working side hustles to keep the lights on and keep my wife home full-time. By day, I’d negotiate with banks at Marcus & Millichap and try to help close some deals. By night, I’d work with The Cheesecake Factory serving cheesecake and food and stuff. I’ve been there and done that. Those are amazing experiences. We did that for two years. Fast forward, we have five kids now. I coach and train and help clients close deals every week. Congratulations. You’ve come a long way since we last connected. I’m so excited for you. That’s amazing. Coming from the kickoff, it was a real estate passion at a young age. That was the start of it, then helping people exit and get the freedom they desire. That’s the bridge or the guide to help people with that because they can get financially free but then they have the time and the energy that’s being, typically, especially in tax-a-fornia now, and this is the flip side of the story, now it’s like they don’t want you to do business in California. They want to make it so difficult and challenging. In New York, New Jersey, and some of these bigger States, there are huge capital gains tax states, which is somewhere between 25% and 50% of your gain being wiped out and yet they put the burden on the landlord. It’s harder to run businesses to be a landlord. You built this massive amount of wealth but now you say, “If I want to get out of all of the headaches of the toilets, the trash, the liability.” By the way, it could be a primary home, a business, or a cryptocurrency. People exit that highly appreciated position, defer the capital gains tax, then invest in optimal timing. In other words, you provide this safe harbor and this freedom for them. That’s the transformation that a lot of people are looking for. We had a client in Palo Alto. It was an $8 million primary home. He wanted to move to Nevada, closer to family. His six kids were also out of the house, and he had the majority of his wealth in his house. He’s looking at this primary home, which is not 1031 eligible. He’s looking at trying to get over to Nevada and be retired. We helped him achieve that by deferring the capital gains tax using something we called a deferred sales trust, which is what we help people with every single day. It works for crypto, businesses, investment, and real estate. It can save a failed 1031 exchange, but it unlocks the freedoms that a lot of our clients’ desire, which are time freedom, location, freedom, also financial freedom, partnership freedom, 1031 freedom, and estate tax freedom are the main ones. That’s incredible. Does it reduce the taxes or do you reinvest it? How does that work? It all depends. It can reduce your income taxes. Let’s imagine you’re a New York resident. Let’s imagine I’m a Texas resident. Texas is pretty cool because it has an income tax, but it could still help you in Texas because you have federal taxes. In fact, we had two deals in Texas, $37 million in land sales for our client. Part of it was short-term gain. He was going to be taxed at ordinary income tax rates, which are the highest tax rates. Not only do we defer all of that, not only in the given year but we can defer typically for at least two years or so. We can defer that, and it can build up like an IRA. It can reduce your year-to-year income tax because you’re slowly going to pay it over time and you might delay it for a couple of years but you might only take partial payments from the trust. For that example, he has a promissory note owed back to him, which is the capital that went into this trust, and he’s become the lender. He’s going to slowly take payments but he’s delaying the payments for a few years. As he takes payments, he may not take the full payment. He may only take half of the payment that the other amount accrues. It can reduce income tax while deferring capital gains tax and you can also eliminate estate tax depending on how big the deal is. That is amazing. Thank you. It is amazing. We love it. I’m speechless now. I’m thinking, “I should have called Brett.” Would you like me to go over some of the other deals to get and give you guys an idea of all possibilities? Yes. We had a client who worked for Google. She loved building Google’s dream and its stock price. She’s brilliant but she also is smart with Bitcoin. She bought Bitcoin at a very low price. Guess what? She went $50,000 or so into Bitcoin at a very early adoption or let’s say investment and it went to $50 million. That’s a big gain, especially if you’re in San Jose and you’re working for Google. That gain is taxed in California. The minimum is probably going to be 37% to 40%. She’s like, “I don’t want to pay that. I’m not going to sell my Bitcoin at all,” until she met us then she goes, “I can defer that? Yes.” She sold now at $54,000 a coin before the crash of Bitcoin. She exited $5 million of the $50,000. She didn’t get out of all of it. She wanted to do it slowly over time. Looking back, hindsight is 2020, and you would have got out of everything like $68,000 or so a coin. At least she got out of $50,000 then she was able to diversify that into a startup. It’s not the tax and the dollars that are deferred. It’s the freedom it unlocks for her to retire. Although she could have retired from Google a while ago, it’s like, “I want to use this capital to start an educational like Khan Academy online to make an impact for kids that are growing up and don’t have access to great quality education.” For her and her college roommate, they start to build their dream with the capital tax deferred, which is amazing. She was able to exit Bitcoin and invest it into a startup tech company that unlocks the freedoms that she’s trying to achieve in her life and doesn’t have to work for Google anymore and gets to pour into something that she’s passionate about. That’s one of the stories that we help to provide and guide people through the process. We work with financial advisors, CPAs, and tax attorneys. Our role is the trustee. Essentially, we’re trying to unlock that freedom from people, and tax is the big thing that’s in the way. We use everything legally to be able to defer the tax and grow wealth. I’m blown away. This is awesome. Good Lord. There are so many possibilities. I know, there are so many possibilities and opportunities. It’s a whole new way to grow wealth. How did you find it? Behind everything amazing, there’s always a special human being or uber-talented or smart, like Elon Musks, Steve Jobs, Michael Dells, you name it. Anything that’s big, there’s some probably genius mind behind it. One of my business partners, he’s a tax-turning CPA. He’s a genius. He figured this out. He paid a tax attorney many years ago. Anything big, there’s probably some genius mind behind it. Click To Tweet There have been thousands of closes with this, over 24 no-change IRS audits, batting 1,000 and it’s perfect as far as this track record is concerned, but most people don’t know about it, A) Because they haven’t necessarily met us yet or even B) Even if they’ve heard about it, they’ve never seen somebody doing it literally day-to-day with people. It’s protected and proprietary, but it works every time if you do it in the right order with the right group of people to help you. That’s the short answer. I had a chance to study and practice it for 10,000 hours since 2009. That’s when the market crashed. I was able to meet this individual. Especially since the pandemic started and where our economy is at now, have you seen a difference or change or modified anything in your business? Did that impact your business in any way? Did you have to make adjustments? My business is educational and was always online. It’s still face-to-face. We poured into more content and focused on more content with the YouTube channel and the podcast that we have. In a positive way, it helped because people are more open to doing deals over Zoom, to be honest. They’re more open to building relationships on video versus in person. We’re a national company. We help everyone across the country with our capital gains tax solutions and services. Honestly, it probably accelerated and made it even better. Also, it clarifies for people what they want in life. COVID, for all of us, said life can be short. COVID, for all of us, said our time, energy, and effort, like life, can be short. Click To Tweet I’m making an adjustment in my personal life and time freedom because I was a workaholic. A lot of my clients show up and they have millions and millions of dollars. It’s like, “You’ve achieved that and you had the financial freedom in the sense of the capital.” We helped a client named Gary Lester. You can hear it on my YouTube channel. His financial advisor named Jake Carpenter brought the deal to us. Jake said, “My client Gary is looking for not only financial freedom, which he’s achieved. He was working his W-2 job. He started investing in his mobile home parks on the side, and he grew and kept buying and buying the value into $10 million.” He’s like, “This is an amazing amount of wealth.” All of this cashflow is great, but guess what? He is now suffering, his time, energy, and stress. He’s like, “Even if I have property management, I still have to deal with this day-to-day.” He’s like, “You’re telling me I can sell not only keep equal or greater cashflow by deferring the capital gains tax and I can be passive? How quickly can I sign up?” He’s like, “I can go spend all the time doing all the things I want to do versus things I have to do.” What he thought was going to provide freedom for him, and it did where it provided him that first financial freedom, became stressful for him. Now, he’s going, “I don’t want that stress.” The deferred sales trust and our plan helped them out. He’s telling everyone about it. He’s like, “Everyone’s got to know this.” By the way, he was skeptical and cautious, and the CPA was skeptical and cautious. He sold his properties in Idaho, a small town. His CPA had never heard about it. He said, “I’ll be very cautious. I wouldn’t do it and all this stuff.” He says, “No, come and learn more about it.” The CPA talked with the tax attorney and learned more about it. That’s the thing I would encourage all the readers who are reading this. Encourage your professional advisor to come along with you and don’t make it throw it out at their plate. They’ve never heard of it probably. Even if they’ve heard it, the odds of them saying yes to you on a $10 million exit with 30 days to go on something they’ve never done before or had a client do before are next to zero, but if you say, “Come along in the journey and do the due diligence with me, ask great questions and see if there are any holes in this as best you can with your knowledge,” then all of a sudden, that’s what he did. He was like, “I see it. It makes sense. There’s nothing I see about it that would hold me back from you using it.” Anyways, he ended up using it and here we go. That’s some great advice. I got to ask you something off the wall you’re probably not prepared for. I never asked this, but I’m curious because I want to know now. What do you like to do in your free time? What are some of the things that you enjoy doing when you’re not working? I know it’s an odd question, but I like knowing other entrepreneurs. What do they enjoy? You have freedom now. It’s family. We have five kids, so our social life is very low, which is fine because it’s all my time with my kids and my wife. We are going to the beach and traveling. Our goal is to spend 1,000 days in 100 different locations before our oldest turns eighteen. That’s awesome. Didn’t you go to Jerusalem? Was that you that went? Not yet but we want to go there someday. There was someone else. I thought it was you for a second that went a few years ago and the videos were beautiful. Not me, but that is on the bucket list. That would be a part of 1,000 days in 100 different locations. As a part of that, we moved out of tax-a-fornia. Fifty-one percent of the time, we’re in St. Augustine, Florida, then 49% were in Sacramento. We’re exploring a whole new frontier of the East Coast and the new beaches and all the new stuff. That’s exciting for the kids. With that, we do all the activities. We play tennis and pickleball. I got to try pickleball. Everybody’s doing pickleball. It’s all the rage, Julie. We also love playing Fortnite. It’s the one game where the kids can play with their dad at any age. We all geek out with that a little bit. I play basketball. I grew up playing basketball. I played in college. We know someone very well on our team who is involved with NBA and scouting. He’s 6’10”. I’m sure he played hoops a couple of times in his class. I’m sure he has. A few times, yes. He’s very involved in the NBA world. That’s all I know. I never got that high. I got to college, a small private Christian university. That was as big as I went, but it was one of my passions. If I could play and do that every day and my knees would not fall apart, I would do it, but I just play a little bit here and there. It’s different as we get older. We don’t heal as fast. Not to sidetrack our readers, with everything that Brett has talked about and reviewed with us so far, you’ve got to check out his book. You can get that book at FullerWalletMedia.com/taxexit for more information. You got to get that game-changing book. I highly recommend it. I appreciate you, Brett, sharing a little bit about your personal stuff because a lot of people don’t do that. It’s nice to see the side of people and what they like to do and enjoy sometimes. Thank you. What is the DST? Is that the acronym for Deferred Sales Trust? Exactly. It’s the acronym for it. That’s the strategy or the technique of the product or service. It is a mixture. The Tax Code is IRC 453, which is an installment sale, but I would say the deferred sales trust as a whole is not only the team, not the Tax Code, the structure, and the trust. All of it as a whole is to execute the capital gains tax exit plan. That’s the deferred sales trust. Is it fairly simple to set it all up or is it complex? It is. It is simple. You can set it up in a day. It’s like setting up an LLC in a lot of ways in that scenario. In each deal, in order to execute the strategy, that’s where the complexities come in and you want to make sure you’re working with professionals that have done this lots of times. Every deal is a little bit different with the C-Corp, S-Corp, or LLC. It works for all of those. It works for business sales, primary home sales, stock, and cryptocurrency. You can save a failed 1031 exchange. It works for investment property. It’s in the setup and the execution that creates value and transformation for clients. Is there anything else out there similar to this? It seems like it’s going to be the newest savings tool in your investment portfolio. There are many imitators, but no one has duplicated it that we know of. The thing is our company’s capital gains tax solutions are plural with an S. If there are bigger or better stuff, we’re happy. I get calls sometimes, and people are bringing their new thing, their magic trust. I’m like, “That’s like a magic trust. That does everything with no restrictions and all this.” We go, “How long have you been doing that?” You quickly start to dwindle away how serious people are about it. How many of you closed or how many of the tax attorneys? How many audits have happened? How many of the tax attorneys defended the audits? What was the outcome of the audits? The neat part with the deferred sales trust is it may be new to someone learning about it but it goes back many years for track record with the IRS and all of that. It then goes back to the 1920s and 1930s for the Tax Code back to seller financing with a trust. That’s where it’s actually very simple. The complexities or the challenges come when people say, “I’m closing fourteen days and we had a $13 million deal in San Diego.” It was a 21-day close. They found me on YouTube. They’re like, “Brett, this sounds incredible amazing. It sounds way too good to be true. We’ve been doing commercial real estate development and car washes for years. We have multiple millions of dollars in tax and gain. We have to pay some tax on it. You’re telling me we can defer that without using 1031?” It’s that time squeeze between know, like, and trust to closing with millions of dollars with a new person. Third-party trustee, that’s our role, third-party financial advisors, third-party banks, and all of those things that come into that become complex. It sounds like it’s very beneficial to use in conjunction with everything else or even on its own. Sometimes we do a mixture. We do a part 1031 and a part deferred sales trust. We had a deal with Ron Anderson and his wife. They sold an Airbnb property in Denver, Colorado for about $4.5 million. We did a partial Delaware 1031, also known as a Delaware Statutory Trust also known as a DST but it’s on the 1031 side. We did a partial deferred sales trust for the majority of the funds. Why do we use two? The DST or Deferred Sales Trust didn’t solve all of his problems. He had a debt replacement problem of debt over basis. It’s a little bit technical here, but essentially, that’s part of what we do. We’ll look at your entire scenario and say, “What is your big problem? What is your big need? What is your big freedom that you’re chasing after? What’s your ideal outcome? What tools are we going to use? What team are we going to build to get you to where you want to be without getting wiped out by capital gains tax and depreciation recapture?” In his scenario, Ron and his wife chose a partial Delaware to defer some tax and the rest of it went to the deferred sales trust. It depends on what you’re trying to achieve. As long as you have $1 million in net proceeds or $1 million gain, that’s our minimum requirement. We do a no-cost consultation. We’ll walk you through the scenarios and see if it’s a good fit for you and let you decide. That’s cool that you can look at everything and see what’s most beneficial. You don’t offer one solution and it’s across the board. That’s great. One of the things that are so hard to find is someone that looks at your entire portfolio. Correct. That’s what we tried to do. We’ll be the first to tell you, “This is probably not a great fit for you. Stick with that 1031 because you found that deal that made sense for you.” You don’t mind overpaying for properties with high-interest rates and cap rates that are still pretty low and states that are burdensome. People still want to do that. More power to them. In the meantime, we’re selling, deferring the tax, investing, typically doubling people’s cash-on-cash return and bigger multifamily syndication groups and properties, and new depreciation schedules. It’s advanced wealth building and tax planning. That’s the fun part that we like to show people how we do it. Taxes are always so much fun. Brett, it’s been such an honor having you on our show. For our readers, go to FullerWalletMedia.com/TaxExit for Brett’s book. Mel, do you have any final questions for Brett? I don’t think so. We keep going on. We could go on and on. That’s why I’m like, “What about this?” It gets you thinking about all the possibilities. I highly recommend it. Do not forget, FullerWalletMedia.com/TaxExit. Get your book now. Brett is the expert on this. Trust me, he’s the leading expert. I’ve known Brett for a long time. Thank you for being on with us, Brett. It’s been such an honor. It’s been a pleasure. Thank you, Melanie and Julie. Thank you.