Have you heard of the new so-called Mansion Tax in the City of Los Angeles? It kind of flew under the radar so you may not be aware of it. It was passed under Measure ULA, and went into effect April 1, 2023. With the tax, selling a home, investment property, commercial property and most other real estate in LA City over $5M will bring significant tax costs for sellers. The tax rate for the new tax will be 4% of the consideration paid or value of the property transferred when the consideration or property value exceeds $5 million but is less than $10 million, and 5.5% if the consideration or value exceeds $10 million.
The new tax is in addition to the existing 0.56% combined documentary transfer taxes imposed in the City and County of Los Angeles (0.11% County Documentary Transfer Tax and 0.45% City Documentary Transfer Tax). This puts a huge increase in the cost of real estate purchase and sale transactions in the City of Los Angeles. To put this into perspective on how much more the City is receiving, the tax is estimated to raise over $900 million per year (based on County Assessor data from fiscal year 2021-2022). Currently, the City of Los Angeles raises an average of $207 million per year from documentary transfer taxes (based on pre COVID 19 fiscal years 2016-2019).
Fortunately, this does not apply to the other incorporated cities in Los Angeles County but please keep an eye out for it in case the County moves toward the same end.
With such a significant increase, does this mean Sellers will try to get more creative with prices and possibly selling personal items or even splitting up parcels. We will see but it certainly means the cost to sell a property in LA City just got a lot more expensive.
If you would like to know more about this, please give me a call at 310-901-4687 or email me at steven@stevenmullins.com.