Article
New realty transfer taxes passed for the cities of Los Angeles and Santa Monica
Jan. 11, 2023 · Authored by Marty Tschida, Renee Bartlett
Both the city of Los Angeles and the city of Santa Monica passed a new realty transfer tax on transfers of residential and commercial real property.
The tax collected will be used to help prevent homelessness and offer affordable housing solutions.
Los Angeles
Measure ULA, commonly referred to as the mansion tax, was passed by the voters in the November 2022 election.
This will impose a new Homelessness and Housing Solutions Tax on transfers of residential and commercial real property in the city of Los Angeles. Both the city and county of Los Angeles levy a documentary transfer tax on every instrument that conveys property sold within the city.
Tax rates
When the value of the property exceeds $100, the city tax is collected at the rate of $4.50 per $1,000 of consideration, while the county tax is levied at the rate of $1.10 per $1,000 of consideration, for a total of $5.60 per $1,000 of consideration.
Under this new measure, sales of residential and commercial real property within the boundaries of the city valued at over $5 million but less than $10 million will be subject to an additional 4% tax, while sales of properties valued at $10 million or more would be subject to an additional 5.5% tax.
The new tax would apply to the entirety of the sale value, not solely the amount more than the $5 million and $10 million thresholds — regardless of whether the property is sold at a gain or a loss. These thresholds will be adjusted each year based on inflation.
This new tax will be in addition to the existing documentary transfer tax imposed on property sales in the city of Los Angeles, which is imposed at a combined city and county rate of 0.56%.
Certain qualified affordable housing organizations are exempt from this tax. Additionally, the new tax wouldn’t apply to certain housing, not-for-profit, and government entities.
It’s unclear if the same exceptions to the existing Los Angeles documentary transfer tax will apply to this new tax. The tax may likely apply to a transfer of interests in a legal entity and should be considered for transfers of interests in a legal entity holding real property.
The new tax will become law on Jan. 1, 2023, but will not impact transactions until April 1, 2023. This new law doesn’t currently have a sunset date.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.