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Los Angeles Mansion Tax

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An additional transfer tax on real estate sales of $5 million or more recently went into effect in Los Angeles, California. Adopted by residents in November 2022, Measure ULA was signed into law on January 1 and became effective on April 1, 2023. 

While commonly called the “Mansion Tax,” this measure affects commercial, residential, and vacant land transactions. An experienced Los Angeles real estate lawyer can help you ensure compliance if you plan to sell your high-value property.

What Is the ULA Tax?

Measure ULA establishes the ULA (United to House LA) tax. It applies to all real estate transactions exceeding a specific threshold, with different rates for properties valued at $5 million or more and those valued at $10 million or greater.

The Measure ULA initiative is anticipated to generate between $600 million and $1.1 billion annually for the city. This tax aims to address the LA housing crisis and support vulnerable populations. 

The funds will go to the House LA Fund trust fund to support the Los Angeles Program to Prevent Homelessness and Fund Affordable Housing. This program subsidizes housing, preserves affordable homes, and provides eviction court assistance to tenants.

How Much Is Los Angeles Property Tax?

The city’s base and ULA taxes will now determine property taxes in Los Angeles for those selling high-dollar properties. The ULA tax is calculated at 0.45% based on the value of the real property interest. 

  • The ULA Rate is 4.45% for properties conveyed over $5 million but less than $10 million.
  • The ULA Rate is 5.95% for properties conveyed for $10 million or more.

All real estate asset classes, from commercial real estate to land sales, will be subject to the same tax. The Director of Finance for Los Angeles will adjust the thresholds to keep up with inflation as measured by the Bureau of Labor Statistics Chained Consumer Price Index (C-CPI-U). However, changes to the thresholds aren’t expected until 2024.

For example, you sell a property in Los Angeles for $8 million. The ULA Tax rate of 4.45% would apply since you are selling the property for over $5,000,000 but less than $10,000,000. This results in an ULA tax of $356,000

Which Properties Are Exempt from the ULA Tax?

The ordinance exempts certain transfers from the ULA Tax. Real estate exemptions apply to the following:

  • Non-profit organizations under Section 501(c)(3) of the Internal Revenue Code
  • Community land Trust
  • Housing cooperatives
  • Limited partnerships or limited liability companies with non-profit general partners or managing members

To qualify for the exemption, a transferee or one of its members or partners must prove a history of housing development or property management experience to the Los Angeles Housing Department. However, community land trusts and limited-equity housing cooperatives must demonstrate their expertise in managing affordable housing to qualify for exemptions.

The tax exemption also applies to these organizations: 

  • Nonprofits with assets of less than $1 billion and initial IRS determination letters received more than ten years before buying
  • The United States, state or local governments, and any other public agency or entity
  • Transferees exempt from city taxes under state or federal law

Are Properties Partially Within Los Angeles Boundaries Affected by the ULA Tax?

Property located partially within the city’s boundaries will be subject to the ULA in proportion to the value of the real property interest transferred within Los Angeles. If the property valuation is unavailable, the city will assess the ULA tax based on the square footage of real property interest. 

Challenges to the ULA Tax

Measure ULA’s passage has raised concerns among real estate brokers regarding the impact of the new tax on property sales. Recent real estate news in Los Angeles, California, indicates that building large complexes with multiple homes could cost over $10 million. 

A potential seller should expect to pay an estimated 11%, including tax, commissions, and other taxes, impacting commercial buyers’ and sellers’ ability or willingness to continue operating in the city. 

In December 2022, two nonprofit organizations representing Los Angeles landlords and homeowners sued to challenge the measure. The Howard Jarvis Taxpayers Association and the Apartment Association of Greater Los Angeles assert that the state constitution forbids cities from imposing real estate transfer taxes earmarked for a specific purpose like Measure ULA. As of February 15, 2023, Los Angeles is working with the city attorney and a law firm on this case. 

How Marinaccio Law Can Help

Those planning to sell their properties in the future need to understand how the ULA tax will affect them. If you’re concerned about the ULA tax, our Glendale real estate attorneys can help you navigate the legal implications of the ULA tax and ensure compliance when selling your home or commercial property. Contact us today to book a consultation.

 

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