During the November 2022 Los Angeles County Midterm Elections, voters approved the "Homelessness and Housing Solutions Tax". This measure is often referred to as the "mansion tax"; and applies to both residential and commercial real estate located within the City of Los Angeles, not including the incorporated cities. Effective April 1, 2023, there is currently no end date on the new tax measure.

Why was the ULA proposed?

The new measure was proposed in response to the City of Los Angeles' rise in homelessness over the last four years. The legislators hope that the new tax will bring in an excess of $5 million to the City of Los Angeles. According to proponents of the "mansion tax", the funds collected will be used to help fund affordable housing and provide additional resources for those at risk of homelessness throughout the city.¹ The City also claims the measure will protect renters, especially seniors and persons with disabilities in low income housing, from being displaced by providing short-term emergency funding and legal services.

How much is the tax?

The new tax is most aptly described as a transfer tax. The tax is imposed on any deed, instrument or writing for real estate within the City of Los Angeles that is sold, transferred, granted, or assigned to a purchaser(s) where the purchase price or consideration for the property exceeds:

1. (i)    $5,000,000 but is less than $10,000,000 in an amount equal to a 4% tax on the consideration or property value; or
2. (ii)    $10,000,000 or greater in amount equal to a 5.5% tax on the consideration or property value.²

While many liken the tax to a property tax, it differs in that the tax is on the entire consideration or value of the property. The tax is imposed anytime a real property sale happens rather than annually like property taxes. This new tax is in addition to the existing Real Property Transfer Tax which is currently 0.45% for Los Angeles City for a combined 0.56% rate when adding the Los Angeles Country documentary transfer tax.

Are there any exemptions to the tax?

There are several exemptions from the tax which depends on whether the Seller or Purchaser meets the criteria set forth below:

Seller:

1. (i)    is a 501(c)(3) non-profit entity;
2. (ii)    belongs to a Community Land Trust as defined under the Los Angeles Administrative Code;
3. (iii)    is part of a Limited-Equity Housing Cooperative;³ or
4. (iv)    owns properties being sold by a limited partnership or limited liability company where the general partners or managing members are bona fide nonprofit corporations, Community Land Trusts and/or Limited-Equity Housing Cooperatives; and

Purchaser:

1. (i)    is a 501(c)(3) non-profit entity that received its initial IRS Determination Letter at least 10 years prior to the anticipated real property purchase and has assets of less than $1 billion;
2. (ii)    is the United States or any agency or instrumentality including state or territory or other federal, state, or local public agency; or
3. (iii)    any other transferee exempt from the City of Los Angeles taxation power.

Other important considerations

As of now, there is no expiration date on the new tax. The Director of Finance for the City of Los Angeles has been authorized to issue any necessary rules and regulations to help implement the tax.

While the tax has not officially been implemented, many property owners are openly opposing the measure. On December 21, 2022, a complaint was filed by several groups requesting the Los Angeles County Superior Court invalidate the ULA. On January 6, 2023, another complaint was lodged by apartment complex owners in the U.S. District Court, Central District of California alleging a violation of the Equal Protection Clause of the U.S. Constitution. There have been no rulings on either case to date.⁴

Other cities and counties are also looking to the City of Los Angeles to lay the framework before they implement their own version of the ULA. Absent a change in the new measure, property owners and potential buyers alike should ensure their future transactions account for this increase in taxes.

Property owners and purchasers located in the City of Los Angeles (or those considering a real estate transaction therein) with questions about the new "mansion tax" should contact Morgan Gray or the Hanson Bridgett Tax Group.

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¹  Real Property Transfer Tax and Measure ULA FAQ

²  Initiative Ordinance ULA [PDF]

³  As defined by California Civil Code Section 817

⁴  ULA Up In Arms