Before the ULA measures take effect in April, Some wealthy residents scrambled to avoid paying a new “mansion tax” to fund affordable housing and homelessness prevention. Even celebrities known for their liberal ideals and humanitarian activism, for some reason, happened to be sold right before the tax went into effect.

When the Fierce Dash became public, one question popped into many people’s minds. why?

Even before voters passed the bill, the city of LA would have imposed a 4% transfer tax on all real estate sales over $5 million and a 5.5% transfer tax on sales over $10 million. Businesses were starting to devise ways to get around it. that. As March draws to a close, luxury homeowners step up their desperate efforts to sell their long-held properties before the deadline.

To an outsider of LA’s luxury real estate scene, the numbers didn’t ring a bell. Many sellers have devalued their homes so cheaply or thrown in so many luxuries that it would have been cheaper to simply sell them at original price and pay taxes. And some people who sold their homes before the law took effect have spent millions more on charity than they have saved from avoiding taxes.

But for insiders—those who know the wealth amassed in this otherworldly housing market and how hard people go to protect that property, there was a clear answer. It is an industry that protects wealth.

Where there is wealth, there are workers charged with protecting it. Like moths to the flame, these accountants, consultants, and lawyers have built their careers on helping the wealthy maintain their wealth.

“What makes the rich different from you and me is an industry focused on helping them minimize taxes,” said Chuck Collins, a senior fellow at the Policy Institute, a Washington, D.C.-based think tank. It’s about having the whole,” he says.

Collins helped coin the term “wealth and defense industry” in his 2021 book The Wealth Hoarders: How Billionaires Spend Millions to Hide Trillions. He said some of this generation’s brightest are working in the “wealth defense” field.

“The wealthy have a plethora of tools at their disposal, and their advisors use trusts, offshore corporations and anonymous shell companies to usurp that wealth and keep it out of reach,” he said. said.

He suggested that if, for example, a Hollywood star known for giving millions to charity sells a mansion days before taxes are due, it’s likely that wealth advisors will sell it as a financial strategy. It was likely the result, he added.

“Celebrities may be civic-minded, but tax avoidance is the bread and butter for advisers, so they can secure their value,” Collins said. “They can say, ‘I saved my clients millions of dollars in tax dollars,’ and they wear that flag around their necks.”

A financial adviser, speaking on condition of anonymity, said people come to him because of his growing reputation among the wealthy for helping clients avoid property taxes. nothing is illegal. They just bent the tax laws to their advantage.

Shortly after the ULA bill passed into law in November, realtors said their inboxes were flooded with emails from accountants and lawyers proposing solutions to avoid the tax.

In December, Walsh Investments Real Estate Associates released a video titled: “Avoid the LA City Mansion Tax.” In April, Ervin Cohen & Jessup LLP published an article titled: “9 Ideas to Avoid the Impact of ULA Countermeasures”

While it’s impossible to know why any particular individual decided to sell, there was a deep irony that many Hollywood elites were involved in the March crash. Many of them have their own philanthropic causes and have donated millions of dollars. other causes.

Brad Pitt, for example, has donated millions of dollars through multiple foundations over the years, pledging $5 million to Katrina refugees and sending $1 million to Doctors Without Borders after the 2010 Haiti earthquake. rice field. He sold his home in the Hollywood Hills for $39 million at the end of March. By doing so, he avoided $2.145 billion in tax claims.

Mark Wahlberg, founder of the Mark Wahlberg Youth Foundation, took down his massive Beverly Park mansion for $55 million in February and sold it by April 1, saving him $3.025 million in taxes. Saved.

Other celebrities who have avoided taxes on real estate transactions include Colin Farrell, who sold the property. his Los Feliz villa In March, the YouTuber earned $5.25 million and ‘The Big Bang Theory’ star Simon Helberg earned $7.8 million. 1930s Spanish Colonial Hideaway. The transaction closed on March 31, the day before the tax went into effect.

Indeed, other factors, such as rising interest rates and market stagnation, may have forced some homeowners to sell at lower prices.

Endeavor CEO Ari Emmanuel sold a traditional style house It sold for $14.5 million near the Brentwood Country Club in February, a shocking drop below its original asking price of $25.9 million.

Selling by April saved about $800,000 owed under the ULA. In May, The Times reported that Emmanuel had earned a total salary of about $347 million over the past five years. donated millions of dollars to charity.

Jennifer Lopez put her Bel Air home on the market for $42.5 million in February.

(Carolwood Estates)

Spokespeople for the actors and high-profile executives did not return calls for comment, nor did clients respond to why the property was sold.

One of the reasons some wealthy Los Angeles residents prefer charity to taxes is that they can control where and how their money is spent.

“Taxes are a democratic system where others decide. Private charities are not responsible to anyone but you,” Collins said. “I fall into the mindset of ‘no one should tell me what to do’.”

Kelly Phillips-Arb, a tax adviser at White & Williams Law Firm, added that some celebrities have found charities specifically for the purpose of saving tax. You can save on both inheritance and income taxes by putting money into foundations like Bill Gates and Melinda Gates, or schools like Kanye West.

It also allows the wealthy to have more direct influence.

“Some people don’t want to give money to Uncle Sam. They want it to be donated to libraries and university funds,” she said.

Many heavyweights in the Los Angeles luxury real estate industry have criticized the tax, pointing to the city’s inefficient spending and inability to address the housing crisis despite spending hundreds of millions of dollars to date. there is

“The way to solve homelessness is not to spend $700,000 to build a single house,” said Jason Oppenheim of The Oppenheim Group. “Developers can build much more efficiently than cities that were incredibly wasteful.”

Collins said accumulating wealth, at some point, becomes less about enjoying what you can afford and more about keeping score. Hypothetically, $30 million is enough. You can live well, stay away from commercial flights, own multiple homes, travel wherever you want, and ensure a good life for your children. But some people always want more.

“The ultra-rich are thinking about multi-generational dynasties,” he said. “They are looking for immortal forms with their names inscribed on buildings and private foundations.”

Under that mindset, losing even 1% of your fortune can lower your score and reduce the length and scope of your dynasty.

If some people are reluctant to pay taxes, there will be short-term and long-term consequences. In the short term, the distress sale has stalled major ULA funding and forced the city to put the brakes on spending on affordable housing and services for the homeless.

In the long run, if the accountants, lawyers and financial advisors employed by the wealthy can find ways to avoid taxes, revenue from this measure will fall far short of the $900 million a year originally projected. become.

Emmanuel Saez, an economics professor at the University of California, Berkeley, said he wasn’t surprised that some people sold their homes, especially to avoid taxes.

“Taxes are a step in the right direction, but they are not enough to solve the problem of inequality,” Saez said.

To curb the concentration of wealth, he will introduce progressive taxes, such as those proposed by Senators Bernie Sanders and Elizabeth Warren, that tax the extreme wealth much higher than their salaries. proposed.

Collins said the transfer tax is a way to address turmoil in the Los Angeles housing market caused by people with too much money.

“The extreme concentration of wealth and viewing real estate strictly as an investment will lead to higher land prices and higher costs, making it impossible for the middle class to live in the areas where they were born and raised,” he said.

what is his solution?

“Tax bad things like real estate speculation and excess luxury homes,” he said. “Let’s fund good things. Let’s provide affordable, permanent housing to communities that need it.”