California has implemented a mansion tax which started April 1st, 2023. The real estate market in Los Angeles has slowed. The mansion tax puts a substantial burden on sellers. And for now, many are not selling or buying which will slow down the LA housing market even more. Many homes will go off the market for a while and that means less inventory for buyers in this price range. People who do buy will have to consider making an investment that could last for decades.
Wealthy homeowners in the city are looking at various tax-evasion strategies and loopholes. They could sell the house for just under five million and sell other assets such as furniture and art separately.
The “mansion tax” ordinance, also known as Measure ULA (for United to House LA), will levy a 4% tax on property transactions above $5 million and a 5.5% tax on sales above $10 million. The seller normally pays the tax, which amounts to $200,000 for a transaction of $5 million and $550,000 for a sale of $10 million.
Measure ULA, which took effect on April 1, may soon make hundreds of millions of dollars more accessible for Los Angeles to spend for initiatives addressing homelessness and affordable housing. Measure ULA established the ULA Tax to fund affordable housing projects and provide resources to tenants at risk of homelessness. The ULA Tax is imposed on all documents that convey real property within the City of Los Angeles when the consideration or value of the real property interest conveyed exceeds a threshold of five million dollars, or is ten million dollars or greater, respectively.
The so-called “mansion tax,” however, may reduce the number of new apartment buildings being developed in the city, according to real estate brokers and developers.
The citywide tax, which imposes an additional 4% tax on properties that sell for $5 million or more, was passed by voters last November. The tax increases to 5.5% if the property sells for $10 million or more.
The City’s procedure for applying the ULA Tax is modeled on the ownership change rules under California Board of Equalization property tax rule 462.260 for all documents subject to the City’s real property transfer tax. If a change of ownership occurred before April 1 but is received by the county for recording on or after April 1, 2023, the taxpayer will need to provide evidence of the actual transaction date to show that it occurred before the April 1, 2023, effective date of the ULA Tax.
Measure ULA does provide exemptions for the ULA Tax.
Qualified Affordable Housing Organizations
A non-profit entity within Internal Revenue Code section 501(c)(3) with a history of affordable housing development and/or affordable housing property management experience
A Community Land Trust, or Limited-Equity Housing Cooperative that has a history of affordable housing development and/or affordable housing property management experience
A limited partnership or limited liability company wherein a recognized 501(c)(3) nonprofit corporation, community land trust, or limited-equity housing cooperative is a general partner or managing member and such 501(c)(3) nonprofit corporation, community land trust, or limited-equity housing cooperative has a history of affordable housing development and/or affordable housing property management experience, or such limited partnership or limited liability company includes a partner or member, respectively, that has a history of affordable housing development and/or affordable housing property management experience
A community land trust or limited-equity housing cooperative partnering with an experienced non-profit organization
A community land trust or limited-equity housing cooperative that does not demonstrate a history of affordable housing development and / or affordable housing property management experience which records and affordability covenant, consistent with section 22.618.3(d)(1)(i). b. of the Los Angeles Administrative Code, on the property at the time of the acquisition.
Other Exemptions
A recognized 501(c)(3) entity which received its initial IRS determination letter designation letter at least 10 years prior to the transaction and has assets of less than $1 billion
The United States or any agency or instrumentality thereof, any state or territory, or political subdivision thereof, or any other federal, state, or local public agency or public entity
Any entity or agency exempt from the City’s taxation power under the California or U.S. Constitutions.
More information is available at Los Angeles Office of Finance.
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