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Yahoo
04-04-2025
- Business
- Yahoo
UCLA report claims the 'mansion tax' stifles commercial development in L.A.
Depending on who you ask, Measure ULA has been a godsend or a disaster for L.A.'s real estate market. A new report suggests the latter. A new analysis from UCLA's Lewis Center for Regional Policy Studies authored by Michael Manville and Mott Smith claims that the so-called "mansion tax" has slowed down sales, especially for commercial properties. Measure ULA was passed in 2022 and took effect in April 2023, bringing a 4% charge to all L.A. property sales above $5 million and a 5.5% charge to sales above $10 million. The proceeds fund affordable housing and homelessness prevention initiatives; roughly two years in, the transfer tax has raised more than $632 million. But the report — published Tuesday and titled "The Unintended Consequences of Measure ULA" — suggests the tax has chilled a once-robust market in L.A., while sales above $5 million have remained steady in other markets across L.A. County not affected by the tax. The study analyzed 338,000 property sales over the last five years and found that the drop is most acute on the commercial side. Under ULA, non-single-family transactions fell 7-15% per month in L.A. ZIP Codes, a trend that compounded to 30-50% over the course of two years. "The hardest-hit properties are not luxury homes, but multifamily, commercial and industrial buildings — the very types we need to support housing production and job growth," Smith said. A commercial decline hurts the city in two ways, the report argues. First, commercial properties often sell for significantly more than single-family homes, so even a slight decrease in sales leads to a large drop in tax revenue. In addition, commercial sales typically lead to new multifamily development, which the city desperately needs in the midst of a housing crisis. Smith said the decline led to a $25-million annual loss in property tax revenue, and that loss will compound over the next few years. In a decade, the loss in revenue could exceed the funds brought in by the tax. Property taxes are different from money brought in by ULA's transfer tax. Property taxes flow into the city's general budget, while ULA taxes are specifically earmarked for affordable housing and homelessness initiatives. Smith and Manville suggested reforming the tax to only affect properties that haven't been reassessed in 20 years, which could exempt multifamily developers while still targeting luxury homeowners whose property values have soared over the years. Joe Donlin, who serves as director of United to House L.A., the organization behind Measure ULA, said the tax is doing what it set out to do. "On its second anniversary, Measure ULA is already producing hundreds of units of affordable housing, protecting tens of thousands of renters and creating thousands of construction jobs," Donlin said. "Its initial dip in revenue owes more to developers and the real estate lobby hoping to overturn it in court or at the ballot box — and losing." The tax has survived multiple legal challenges in the last few years from the luxury real estate community, who sought to declare the measure unconstitutional. In addition, revenue sputtered in the first year of the program as property owners either sold off homes in the days before the tax took effect or found loopholes to avoid paying it. Revenue and sales have both increased year over year as legal challenges fade. The tax raised roughly $296 million in fiscal year 2024 and has raised $320 million so far in fiscal year 2025. But the numbers still fall well short of initial projections of $900 million per year. Sign up for Essential California for news, features and recommendations from the L.A. Times and beyond in your inbox six days a week. This story originally appeared in Los Angeles Times.
Los Angeles Times
04-04-2025
- Business
- Los Angeles Times
Report claims the 'mansion tax' stifles commercial development in L.A.
Depending on who you ask, Measure ULA has been a godsend or a disaster for L.A.'s real estate market. A new report suggests the latter. A new analysis from UCLA's Lewis Center for Regional Policy Studies authored by Michael Manville and Mott Smith claims that the so-called 'mansion tax' has slowed down sales, especially for commercial properties. Measure ULA was passed in 2022 and took effect in April 2023, bringing a 4% charge to all L.A. property sales above $5 million and a 5.5% charge to sales above $10 million. The proceeds fund affordable housing and homelessness prevention initiatives; roughly two years in, the transfer tax has raised more than $632 million. But the report — published Tuesday and titled 'The Unintended Consequences of Measure ULA' — suggests the tax has chilled a once-robust market in L.A., while sales above $5 million have remained steady in other markets across L.A. County not affected by the tax. The study analyzed 338,000 property sales over the last five years and found that the drop is most acute on the commercial side. Under ULA, non-single family transactions fell 7-15% per month in L.A. ZIP Codes, a trend that compounded to 30-50% over the course of two years. 'The hardest-hit properties are not luxury homes, but multi-family, commercial and industrial buildings — the very types we need to support housing production and job growth,' Smith said. A commercial decline hurts the city in two ways, the report argues. First, commercial properties often sell for significantly more than single-family homes, so even a slight decrease in sales leads to a large drop in tax revenue. In addition, commercial sales typically lead to new multi-family development, which the city desperately needs in the midst of a housing crisis. Smith said the decline led to a $25-million annual loss in property tax revenue, and that loss will compound over the next few years. In a decade, the loss in revenue could exceed the funds brought in by the tax. Property taxes are different from money brought in by ULA's transfer tax. Property taxes flow into the city's general budget, while ULA taxes are specifically earmarked for affordable housing and homelessness initiatives. Smith and Manville suggested reforming the tax to only affect properties that haven't been reassessed in 20 years, which could exempt multi-family developers while still targeting luxury homeowners whose property values have soared over the years. Joe Donlin, who serves as director of United to House L.A., the organization behind Measure ULA, said the tax is doing what it set out to do. 'On its second anniversary, Measure ULA is already producing hundreds of units of affordable housing, protecting tens of thousands of renters and creating thousands of construction jobs,' Donlin said. 'Its initial dip in revenue owes more to developers and the real estate lobby hoping to overturn it in court or at the ballot box — and losing.' The tax has survived multiple legal challenges in the last few years from the luxury real estate community, who sought to declare the measure unconstitutional. In addition, revenue sputtered in the first year of the program as property owners either sold off homes in the days before the tax took effect or found loopholes to avoid paying it. Revenue and sales have both increased year-over-year as legal challenges fade. The tax raised roughly $296 million in fiscal year 2024 and has raised $320 million so far in fiscal year 2025. But the numbers still fall well short of initial projections of $900 million per year.
Yahoo
01-03-2025
- Business
- Yahoo
California Mansion Tax: Overview, Exemptions, How to Avoid
SmartAsset and Yahoo Finance LLC may earn commission or revenue through links in the content below. 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. 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. 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. 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. In addition to Los Angeles, the other jurisdictions in California that have enacted "mansion taxes" include Berkeley, Culver City, Emeryville, Oakland, Richmond, San Francisco, San Jose, San Mateo and Santa Monica. The tax rate depends on the sale price of the property. For Los Angeles: Properties sold for $5.15 million to $10.3 million are taxed at 4%. Properties sold for over $10.3 million are taxed at 5.5%. These rates are significantly higher than traditional real estate transfer taxes, making it essential for sellers to plan accordingly. 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. 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. 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: Slowdown in luxury home sales: Many luxury homeowners have reconsidered selling their properties due to the additional tax burden. This has led to a slowdown in high-value property transactions, with some sellers delaying sales or withdrawing listings altogether. Increase in off-market deals. To avoid triggering the mansion tax, some property owners have turned to off-market transactions or private sales, structuring deals in ways that minimize tax implications. Impact on commercial real estate. The tax does not just affect luxury homeowners - commercial property sellers also face increased costs, which can lead to higher rents or shifts in investment strategies. Incentivizing smaller transactions. Some sellers have adjusted their pricing strategies to keep sales under the tax threshold, leading to a shift in market dynamics and price negotiations. Here are three exemptions to consider: Government-owned properties: Properties sold by government agencies, such as city, county or federal entities, are typically exempt from the mansion tax. Nonprofit organizations: Some sales involving nonprofit organizations may be exempt, particularly if the sale is used to advance charitable or public purposes. This includes certain low-income housing developments or properties transferred between nonprofit entities. Affordable housing developments: Properties being sold for the purpose of constructing affordable housing may be exempt, depending on the specifics of the transaction and buyer intent. Here are three possible ways to avoid the mansion tax: Sell below the tax threshold: Since the tax applies only to properties sold for $5.15 million or more, some sellers negotiate deals that stay just below this threshold. Split the transaction: Some sellers explore creative structuring, such as separating land and building sales or dividing ownership shares. However, you must comply with legal requirements and should consult with a tax expert in California to verify whether you could do it. Gift or transfer ownership: Transferring a property to an heir or family member before selling can, in some cases, circumvent taxes, particularly if done through estate planning or trusts. You may want to consult with a tax expert in California to see if this applies to the mansion tax as well. 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. If you are looking for ways to lower your tax liability, a financial advisor who specializes in tax planning can help optimize your finances. Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now. If you want to know how much your next tax refund or balance could be, SmartAsset's tax return calculator can help you get an estimate. Photo credit: © Živković, © © Manustrong The post California Mansion Tax: Overview, Exemptions, How to Avoid appeared first on SmartReads by SmartAsset.
