May 27, 2024

Measure ULA: New Transfer Tax on Los Angeles Residential and Commercial Real Property Sales Over $5 Million

Measure ULA: New Transfer Tax on Los Angeles Residential and Commercial Real Property Sales Over $5 Million

November 14, 2022

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Measure ULA, typically acknowledged as the “mansion tax,” would impose a new “Homelessness and Housing Remedies Tax” on transfers of household and commercial genuine assets in the city of Los Angeles valued in surplus of $5 million.[1]  The revenue lifted by the new tax, predicted to be involving $600 million and $1.1 billion annually, is meant to be used to fund very affordable housing and tenant guidance packages.  As of the date of this Client Inform, the evaluate is ahead in the most current vote count.

Below the evaluate, gross sales of residential and business genuine property valued at over $5 million but less than $10 million would be subject to an further tax at the amount of 4%, though sales of houses valued at $10 million or a lot more would be subject matter to an more tax at the charge of 5.5%.  The new tax would use to the entirety of the sale benefit, not exclusively the sum in extra of the $5 million and $10 million thresholds, and irrespective of whether the home is sold at a acquire or a decline.  The thresholds would be adjusted each and every year centered on inflation.  The tax would use to house gross sales taking place on or soon after April 1, 2023.

The new tax would be in addition to the present documentary transfer tax imposed on assets revenue in the town of Los Angeles, which is imposed at a combined metropolis and county price of .56%.

The tax differs in some respects from the present documentary transfer tax imposed by the metropolis and county of Los Angeles.  For illustration, whilst the present documentary transfer tax is calculated by excluding the benefit of any liens or encumbrances remaining on the property at the time of the sale, the new tax appears to comply with the model of other metropolitan areas, these types of as San Francisco, and is imposed on the gross value of the residence, i.e., by together with the worth of liens or encumbrances remaining on the home at the time of the sale.  In addition, there are sure exemptions from the tax that are not relevant to the existing documentary transfer tax, which includes exemptions for transfers to certain non-revenue entities and to sure group land trusts and minimal-equity housing cooperatives that, topic to specified exceptions, exhibit a record of inexpensive housing enhancement and/or economical housing residence administration experience.

Similar to the present documentary transfer, even so, given the language used in Evaluate ULA, it appears likely that Los Angeles would interpret the tax as applying to a transfer of pursuits in a legal entity that results in a transform in ownership of actual home held by the legal entity for home tax needs.  See our [prior Client Alert[2]] for a a lot more in depth dialogue of this subject.[3]   In addition, it appears that the tax would be topic to the similar general exceptions established forth in the Los Angeles metropolis ordinance that utilize to the exiting metropolis of Los Angeles documentary transfer tax (e.g., mere alterations in identification, type, or put of group).  Somewhat less clear is no matter whether the exceptions set forth in the California point out transfer tax statute would implement to the new tax (e.g., foreclosures and deeds in lieu of foreclosures).  In addition, it remains to be noticed how sure elements of the regulation will be interpreted, like the application of the $5 million and $10 million thresholds to transfers that incorporate individual interests in real house (e.g., land and advancements, professional condos).

If enacted, the Homelessness and Housing Alternatives Tax would signify a sizeable improve in the transfer taxes applicable to residential and commercial property sales in the city of Los Angeles valued in surplus of $5 million and, as these, is envisioned to have a major affect on gross sales of residential and professional property in the town of Los Angeles going forward.

You should get hold of any Gibson Dunn tax attorney for updates on this situation.




[3] Notably, Evaluate ULA authorizes the Director of Finance to challenge principles and restrictions additional defining the time period “realty offered,” which triggers each the present documentary transfer tax and the new tax, and which other cities have applied to explain that the assets tax improve in possession principles apply to the documentary transfer tax.  See, e.g., Section 1114(b) of Short article 12-C, San Francisco’s Actual Property Transfer Tax Ordinance (“Notwithstanding subsection (a), “realty sold” contains any acquisition of transfer of possession interests in a authorized entity that would be a improve of possession of real residence under California Earnings and Tax Code Segment 64.”).

This notify was geared up by Lorna Wilson.

Gibson Dunn’s attorneys are obtainable to guide in addressing any inquiries you may have about these and other tax-related developments. If you have any queries, be sure to speak to the Gibson Dunn law firm with whom you usually do the job, any member of the Tax or Actual Estate practice groups, or any of the following:

Tax Team:
Dora Arash – Los Angeles (+1 213-229-7134, [email protected])
Eric B. Sloan – Co-Chair, New York (+1 212-351-2340, [email protected])
Lorna Wilson – Los Angeles (+1 213-229-7547, [email protected])
Daniel A. Zygielbaum – Washington, D.C. (+1 202-887-3768, [email protected])
Brian R. Hamano – Los Angeles (+1 310-551-8805, [email protected])
David W. Horton* – Los Angeles (+1 213-229-7613, [email protected])
George Liang – Los Angeles (+1 213-229-7230, [email protected])

*David W. Horton is an affiliate functioning in the firm’s Los Angeles workplace who is admitted only in New York.

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