Everybody is talking about the new “Mansion Tax” and what it will mean for property owners throughout the city of Los Angeles. Beginning on April 1st, 2023, the sale of any real estate asset (residential and commercial) valued at over $5 million will require the owners to pay a 4 to 5.5% transfer tax on the gross sale price to fund affordable housing and tenant assistance programs. This is in addition to the existing city and county transfer taxes of .56% that applies to all real property sales in Los Angeles County.
Real estate sold for $5,000,000 but less than $10,000,000 will be taxed at the rate of 4% and real estate sold for $10,000,000 or greater will be taxed at the rate of 5.5%. This means that the new fees start at $200,000 per transaction and go up from there, regardless of whether the property is sold at a gain or a loss.
This new initiative that was passed with 57 % support in November’s election is expected to generate approximately $600 million to $1.1 billion annually for the “House LA Fund”.
Between 2010 and 2020, there were 20 ballot initiatives to raise transfer taxes in California, 13 of which were approved by voters. San Francisco currently has a six-tier system that starts at 0.5% for sales above $10 million and maxes out at 6% for sales above $25 million.
Residents of Santa Monica have approved Measure GS which, beginning March 1, 2023, will impose a transfer tax at a rate of 5.71% when the gross value is $8 million or greater. The difference between the Santa Monica and Los Angeles measures is that Santa Monica uses a tiered system. The City of Santa Monica's Documentary Transfer Tax is $3.00 per $1,000 value for sales and transfers under $5 million (First Tier Tax Rate), and $6.00 per $1,000 value for sales and transfers of $5 million or more (Second Tier Tax Rate).The new tax (Third Tier Tax Rate)is imposed for sales amounts over $8 million.
Both residential and commercial property owners are already looking for ways to avoid this hefty transfer tax and they are gathering signatures to either repeal the law or invalidate it in the next election in 2024.
If you have any questions about the details of Measures ULA and GS please contact us. We will be happy to provide up to date information about these new tax measures and help you estimate the costs involved with selling your home.