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.
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.
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 January 1, 2023, but will not impact transactions until April 1, 2023. This new law doesn’t currently have a sunset date.
Of the two competing realty transfer tax measures on the November 2022 ballot, Measure GS, which sought to establish an additional tier of realty transfer tax, was passed by a majority of votes.
This third tier tax will fund homelessness prevention and affordable housing, along with a new school fund.
Santa Monica Municipal Code Chapter 6.96 sets the city’s real estate transfer tax. Currently, there are two tax rates. The First Tier Tax Rate—$3.00 per $1,000 of value transferred—applies to transfers under $5 million. The Second Tier Tax Rate—$6.00 per $1,000 of value transferred—applies to transfers of $5 million or more.
Under this new measure, the Santa Monica Municipal Code will be amended to establish a new Third Tier Tax Rate on transfers of property, both commercial and residential, of $8 million or more. The Third Tier Tax Rate will be $56.00 per $1,000 of value transferred.
The new tax will become law on January 1, 2023, but won’t impact transactions until March 1, 2023. This new law doesn’t currently have a sunset date.
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