The LA Mansion Tax

Back in December 2022, the Los Angeles City electorate decided to vote on a majority basis to approve the ULA Measure, which stands for United to House LA. The intent was clearly a financial attack on the well-to-do, intending to apply a new property tax on homes that fit the artificial definition of a “mansion” under the new law. That new law became effective in Los Angeles in April 2023 this year. While the imposition of the tax created a lot of controversy, Steven Taylor LA property expert notes there was also a lot of confusion about how the new tax applied to property as well.

Clarity on What is Taxed as a “Mansion”

First off, the mansion tax only applies to those properties that have a value over $5 million. However, given the continuing rise of property values in California, particularly the urban and suburban areas, more and more properties would be eligible to be included in the same category of impact. Secondly, the tax applies to transactions that start on April 1, 2023, not retroactively. While both are a bit of relief for those who already own properties at or close to the $5 million mark, it doesn’t mean things are out of the woods. Because of these fine details, discussion confusion created a lot of angst in 2023, as well as stalling a good number of sales that otherwise would have gone through absent the recent legal change.

Purpose of the Tax: Redistribution

In a classic redistribution of wealth model, the ULA Measure essentially raises a tax revenue stream on high value property, with an expected revenue channel of $900 million annually. The same money is then expected to be used by Los Angeles City to pay for low income housing subsidy programs and help tenants with rent assistance to avoid eviction or losing homes to foreclosure. While the intent is clearly meant to help those who need financial assistance for housing, the means of generating that help is definitely open to a lot of debate still, even with the vote having passed the local tax.

The Good News for Property Owners

The first bit of good news, Steven Taylor Los Angeles real estate resource notes, is that the actual application of the tax only happens on the sale or transfer of an eligible property, not on property owners who keep their property and don’t change its title. That said, for investors, it does definitely mean an added cost to any purchase after the beginning of April 2023, which is already some eight months old now. How much is that cost? Per the law, it adds an additional transfer tax of 4 percent for properties valued at $5 million but less than $10 million, and then 5.5 percent for over $10 million. While new to Los Angeles, it’s not unique in California; a similar tax applies in San Francisco as well as Santa Monica and a few other locations.

The second bit of good news is that the new transfer tax doesn’t apply to non-profit properties, community land trusts and a handful of other exemption categories as well. Other exceptions such as gift of property can be exempt as well. Property owners should consult with an attorney for their specific case situation.