Unpacking the LA Mansion Tax
Los Angeles "Mansion Tax"
Los Angeles is known for its luxurious real estate, sprawling mansions, and the place to be for the rich and famous. Boasting some of the most expensive real estate in the country (the 1930s Bel Aire stunner Casa Encantada has been on the market since June 2023 for a cool $250M (reduced to $195M in fall 2023) and if it sells, will hold the title for the most expensive home sold - FOR THE THIRD TIME!), it’s now known for its new Mansion Tax that went into effect April 1, 2023. So what the heck is it? Who does it apply to? And what everyone wants to know - how much is it?!
What is it?
The Mansion Tax is the popular name of Los Angeles Initiative Ordinance 187692 “United to House LA” approved by voters on November 8, 2022, and went into effect on April 1, 2023. The Ordinance amends the City’s municipal tax code to implement a new documentary transfer tax on all real property transferred in Los Angeles from April 1, 2023 and beyond.
The purpose of the new tax is to address the lack of affordable housing in the City of Los Angeles. The ordinance states:
“Increasing the Real Property Transfer Tax on the highest priced properties in the City will generate an ongoing revenue source which will allow the City to employ robust tenant stabilization policies and practices to proactively keep vulnerable households from losing their homes and instead build significant numbers of homes that are affordable to the City’s Lower Income Households, thereby directly preventing and reducing homelessness across the City and lowering the City’s housing costs.”
The City expects this additional transfer tax will generate nearly $700M in revenue annually to be earmarked for affordable housing, eviction defense support for tenants, and other homelessness prevention funding and programs. Section 1 (q) & (r) outline how the City intends to allocate those funds.
Applicability
This tax will be called the “Homelessness and Housing Solutions Tax” and is applied to the following types of real estate transactions:
Any real estate sold in the City of Los Angeles
In excess of $5 million dollars*
There are exemptions to this transfer tax.
How much revenue will this generate for Los Angeles?
LA estimated nearly $1B annually. Expectations were lowered to $700M annually. If this sounds familiar - the lackluster tax revenue is about as fruitful as 2021 Prop 19 tax estimates. The California State Board of Equalizers released its findings for Fiscal Year 2021-2022 and noted a 7% increase in property values generating an increase in $500B to county-assessed property values. This generated an additional $3.2B (4% increase) to property tax revenue. But let’s take into consideration the market caused by COVID from 2020-2022 and what impact that had on the increased tax revenue. The longer-term impact of Prop 19 will likely come in the next few years.
Tax Rate
| VALUE OF PROPERTY | BASE RATE | ULA RATE | APPLICABLE TAX RATE |
|---|---|---|---|
| >$100- ≤ $5M | $2.25/$500 |
0% | 0.45% |
| $5M-$10M | $2.25/$500 | 4% | 4.45% |
| ≥$10M | $2.25/$500 | 5.5% | 5.95% |
Exemptions
Certain real property transfers are exempt from this new transfer tax:
Determined by LA Housing Department (21.9.14 LAMC):
Qualified Affordable Housing Organizations
Determined by LA Finance Department (21.9.15 LAMC):
Recognized 501(c)(3) over 10 years old and assets of less than $1 B
US Gov't and other federal, state, or local agency
Any entity/agency exempt from City's taxation power under CA or US law
All other transactions exempt from the base Real Property Transfer Tax per local, state or federal law/regulations
