The LA Mansion Tax (AKA Measure ULA) Explained

Voters approved Measure ULA
colloquially known as the LA Mansion Tax late last year.
But what exactly does it entail?

Also known as the Homelessness and Housing Solutions Tax (HHS Tax), Measure ULA creates a new tax on certain Los Angeles property transfers. The goal of the tax is to generate funds for housing subsidies and tenant protections. Keep reading for a list of the must-know highlights of Measure ULA.

• The tax applies to both residential and commercial real property sales valued over $5 million.
• The tax is an additional transfer tax and does not replace nor modify the existing LA County/City transfer taxes.
• The HHS Tax will apply a tax rate of 4% to properties sold for $5 million or more, but less than $10 million. A 5.5% tax rate will apply to properties sold for $10 million or more.
• The HHS Tax applies to the gross sale value. There is no reduction for existing debt at the time of sale, which is not the case in respect of the normal transfer tax.
• The HHS Tax takes effect on April 1, 2023 and will apply to property transfers on or after that date.
• To account for inflation, the HHS Tax thresholds of $5 million and $10 million will be adjusted each year.
• Property transfers with “qualified affordable housing organization” transferees will be exempt. For example, certain nonprofit transferees and governmental transferees.

There are still some things that need to be determined when it comes to the HHS Tax. These things include:

• Whether transfers of interests in legal entities that result in a change of ownership in real property will trigger the HHS Tax.
• Whether the California transfer tax statutory exemptions will apply to the HHS Tax. One example? Foreclosure sales.
• How the tax is applied to real property transfers involving separate real property interests. What happens with sales of multiple properties in a series of transactions when it comes to aggregation to determine achieving the threshold levels?
• Some economists are predicting the HHS Tax will drive luxury buyers to the Orange County market. While that remains to be seen, it is always a good idea to work with a local real estate specialist to provide direction and clarity. 
• For more information on Measure ULA or the current housing market, contact Gary today.

• Source: Katten.com