Attention Property Owners: Los Angeles and Santa Monica Approve ‘Mansion Tax’ Ballot Measures, Increasing Transfer Taxes on Sales Valued at $5 Million or More

Residents of Los Angeles have approved Measure ULA, a ballot measure widely known as the “Mansion Tax,” which increases transfer tax rates on real estate sales valued at $5 million or more. Prior to Measure ULA, real estate transactions in the City of Los Angeles are generally subject to a transfer tax at a 0.56% rate (which includes the county tax). The amount subject to tax is either the gross value of the property or consideration received, but reduced by lien encumbrances remaining on the property at the time of transfer.

Measure ULA takes effect on April 1, 2023. Under Measure ULA, there will be an additional “Homelessness and Housing Solutions Tax,” when the consideration or value of the interest or property conveyed (irrespective of any lien encumbrances) in the City of Los Angeles exceeds $5 million. This new tax will be in addition to the aforementioned 0.56% levy. The Homelessness and Housing Solutions Tax will be 4% of the entire value when the consideration or value is at least $5 million but less than $10 million; the rate is 5.5% when the consideration or value is $10 million or greater. Transfers to certain affordable housing entities, tax exempt organizations with assets of less than $1 billion, and government agencies will be exempt from the tax. The measure authorizes the Los Angeles City Director of Finance to issue rules and regulations to clarify and potentially limit which transactions would be subject to the tax. It is currently not known whether Los Angeles will take the position that transactions exempt from the current 0.56% levy, such as foreclosure transactions or transfers to wholly owned subsidiaries, will be subject to the Homelessness and Housing Solutions Tax.

Similarly, residents of Santa Monica have approved Measure GS, which authorizes the city to enact a third tier to its real estate transfer tax structure. Under current law, the transfer tax rate depends on the gross value of realty transferred (reduced by lien encumbrances remaining on the property at the time of transfer). The rate is 0.41% when the gross value is less than $5 million and 0.71% when the gross value is $5 million or more (which rates are inclusive of a county level tax). This 0.71% rate tier was recently added by ballot measure approved in November 2020. Now, the residents of Santa Monica have approved an additional tier, which, beginning March 1, 2023, will impose tax at a rate of 5.71% when the gross value is $8 million or greater. As the language of Santa Monica’s measure is incorporated into the general transfer tax regime and is not drafted as a separate tax, the typical transfer tax exemptions should apply.

Los Angeles and Santa Monica follow a growing list of cities in increasing transfer tax imposed on high value transactions, including San Francisco which now has a tax rate of 6% on transfers over $25 million, San Jose which now has a tax rate of 1.5% on transfers over $10 million, and Culver City which now has a tax rate of 4% on transfers over $10 million.