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California is known for its high property values. And in some parts of the state, like Los Angeles, high-value property owners now face additional financial considerations with a mansion tax. Officially known as the Measure ULA, or the United to House L.A. proposition, it primarily impacts high-end property sales by adding a levy on transactions exceeding $5 million. If you’re a homeowner, investor, or seller in the California real estate market then it’s important to understand how this tax works.
A financial advisor can provide personalized guidance, helping you optimize your real estate strategy while staying compliant with state regulations.
What Is the California Mansion Tax?
While California does not have a statewide mansion tax, Los Angeles has one for the city. A mansion tax is a real estate transfer tax imposed on high-value property sales. Unlike standard property taxes, which are paid annually, this tax is levied at the time of sale.
Who Does It Apply To?
The tax primarily targets high-value residential and commercial property owners who sell properties above $5.15 million as of June 2024. It affects those selling single-family homes, condominiums, apartment complexes and some commercial properties.
Where Is It Enforced?
While California has several local transfer taxes, the Measure ULA tax specifically applies to properties sold in Los Angeles. However, several high-income neighborhoods outside Los Angeles, such as Beverly Hills, Malibu and Calabasas, are exempt from the tax.
The tax rate depends on the sale price of the property. For Los Angeles:
These rates are significantly higher than traditional real estate transfer taxes, making it essential for sellers to plan accordingly.
When Did It Take Effect?
The mansion tax became effective in Los Angeles on April 1, 2023, after being approved by voters under Measure ULA. It raised $192 million in its first 10 months, and is the largest single source of revenue for affordable housing and homelessness prevention programs.
How Is It Paid?
The tax is typically paid at closing by the seller. This means if a property sells for $6 million, the seller is responsible for paying 4% of the sale price ($240,000) in mansion tax fees.
How Does the Mansion Tax Affect Real Estate?
The mansion tax can increase the cost of high-value property transactions, which could discourage some buyers and slow sales in higher price ranges. In markets like Los Angeles, where home prices can exceed the tax threshold, it could influence pricing strategies and buyer demand. Here are four general ways in which the mansion tax could affect the real estate market:
California Mansion Tax - How to Avoid
Here are three possible ways to avoid the mansion tax:
Bottom Line
While the mansion tax is not a statewide tax, it can significantly impact high-value real estate transactions in cities like Los Angeles. The tax aims to fund affordable housing initiatives, but it can also make the housing market more expensive for sellers and investors. For property owners facing this tax, a tax expert can recommend specific tax-efficient strategies.
Tax Planning Tips
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