How the “Mansion Tax” Affects the Los Angeles Real Estate Market

How the “Mansion Tax” Affects the Los Angeles Real Estate Market

  • The CREM Group
  • 01/22/24

On October 24, 2023, a judge dismissed a lawsuit challenging the city of Los Angeles’s “mansion tax,” another name for the transfer tax known as Measure ULA (United to House LA). Measure ULA established the ULA Tax to fund affordable housing projects and provide resources to tenants at risk of homelessness. 

Los Angeles city voters approved Measure ULA during the November 2022 election cycle with a 57% majority. It took effect April 1, 2023.

How Much and Scope

The transfer tax rendered a 4% charge on all residential and commercial real estate sales in the city above $5 million and a 5.5% charge on sales over $10 million with the intention to use the money toward housing and homelessness-prevention efforts. While San Francisco and Culver City in California and New York City have passed such taxes, L.A.’s is unique in scope and scale, as it goes beyond just taxing home sales to include all property sales above $5 million.

The Challenge and the Dismissal

The real estate community in Los Angeles challenged the law early in 2023, declaring the measure unconstitutional, and they claim that the transfer tax has frozen the market and stifled development. L.A. County Superior Court Judge Barbara Scheper dismissed the lawsuit after hearing arguments from both sides.

Appeal

An attorney for Newcastle Courtyards—one of two groups challenging the measure—said he plans to appeal the decision. The real estate community feels it discourages development and pushes owners out of Los Angeles proper into cities that don’t have the tax. Beverly Hills, West Hollywood, and Santa Monica don’t have such a tax. Yet advocates argue this transfer tax creates a way for high-value property owners to contribute to solving L.A.’s housing crisis.

“With Measure ULA, we are now going to lose billions of dollars every year in economic development and property tax revenue in order to raise less than $500 million through the tax,” said Jason Oppenheim, a real estate agent with the Oppenheim Group and star of Netflix’s “Selling Sunset.”

Effect on the (“Luxury”) Real Estate Market

While the luxury real estate market froze in the months after the measure took effect, and some owners sought to avoid paying the tax by hiring accountants to find workarounds to keep their properties under the $5-million limit, many homeowners postponed selling their homes, hoping the lawsuit would preclude the tax.

The tax was in effect April 1, but the slowdown in sales meant the funds expected were far behind their target. According to the Hollywood Reporter, a real estate attorney, Loretta Thompson, said, “The flurry of activity that happened up until April 1 was pretty phenomenal. And then, of course, after that, people started pulling their listings. There’s been a quantifiable pause in anything that’s over $5 million. It chilled the market immediately, which was what everyone expected it would do.”

What We Need to Do

Because of the scope of the L.A. version of the tax (the tax is paid by the seller not the buyer), commercial property sales slowed as well. Drill down to probate and trust properties, and the trickle-down has affected the entire Los Angeles City real estate sales figures.

It’s time to move on.

Arming yourself with the facts will go a long way toward understanding your rights and some of the ULA Tax calculations, And if you have a residential or commercial probate or standard property to sell, the best course is to work with probate and trust lawyers and real estate brokerages, like The CREM Group.

This website titled Real Property Transfer Tax and Measure ULA FAQ can answer many of your questions. A sampling of the questions follows. The answers can be found on the website.

  • What is Measure ULA, and how does it work?
  • How is the Transfer Tax applied?
  • What are the rate components of the Base Tax and the ULA Tax under the City’s real property transfer tax?
  • Will the value thresholds under the ULA Tax be adjusted annually?
  • Are there any exemptions for the ULA Tax?

For now, the law is in effect, and the challenge to the law has been overturned. With an appeal on the horizon, you might choose to wait it out. Still, if you cannot, then it’s time to do your homework, work with professionals, and keep coming back to The CREM Group’s Journal and other pages (like our glossary page) that will grow your understanding of real estate in general and probate real estate in particular.

Please get in touch with us if you have questions. As a real estate brokerage owned by Mark Cianciulli, a CPA, attorney, and real estate broker who has been specializing in probate, trust, and conservatorship properties in the greater Southern California area, Mark has developed a team with over 50 years’ experience. The CREM Group is a great place to start when it comes to specialized real estate sales.

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