The “MANSION TAX” Explained

*UPDATE: ULA Tax Threshold increased from $5 million to $5.15 million.

California’s real estate market is renowned for its dynamism, but it also comes with a unique set of taxes and regulations. Among them is the United to House LA (ULA) tax, a voter-approved measure aimed at addressing housing affordability in Los Angeles. If you’re a property owner, investor, or considering real estate transactions in the region, understanding this tax is crucial.

What Is the ULA Tax?

The ULA tax, also known as the “Mansion Tax,” was approved by voters in Los Angeles through Measure ULA in November 2022 and took effect on April 1, 2023. This tax targets high-value property sales, with proceeds allocated toward combating homelessness and increasing affordable housing.

How Does the ULA Tax Work?

The ULA tax applies to property sales (both residential and commercial) within the city of Los Angeles. It is assessed as follows:

• 4% tax on property sales between $5 million and $10 million.

• 5.5% tax on property sales exceeding $10 million.

For instance:

• Selling a $6 million property would incur a $240,000 ULA tax (4%).

• Selling a $12 million property would incur a $660,000 ULA tax (5.5%).

This is in addition to existing property taxes and other transfer taxes.

Key Exemptions

Certain types of sales may qualify for exemptions, including:

• Transfers to qualified nonprofits.

• Transfers involving affordable housing developments.

• Sales where the gross proceeds are below $5 million.

Why Was the ULA Tax Introduced?

Los Angeles faces an acute housing crisis, with soaring homelessness rates and a shortage of affordable housing. The ULA tax aims to generate an estimated $600 million to $1 billion annually to fund:

• Construction of affordable housing.

• Homelessness prevention programs.

• Rental subsidies and legal assistance for tenants.

Impact on Real Estate Transactions

1. Increased Cost for High-Value Properties:
   Sellers of high-end properties must now account for this additional cost, which could influence pricing strategies.

2. Potential Market Adjustments:
   Some experts speculate that the tax could slow down transactions in the luxury market, as sellers and buyers negotiate who absorbs the cost.

3. Encouragement of Affordable Housing Development:
   With exemptions for affordable housing projects, the tax incentivizes investment in this critical sector.

Strategies for Property Owners and Investors

1. Timing Transactions Wisely:
   If you anticipate a sale, consider how the tax aligns with your financial goals and timing.

2. Structuring Transactions:
   Consult with legal and tax professionals to explore creative strategies, such as gifting or structuring sales to nonprofits, where applicable.

3. Investing in Exempt Projects:
   Consider directing investments toward affordable housing developments, which align with exemptions and may offer other financial incentives.

Conclusion

The ULA tax represents a significant shift in Los Angeles’ approach to addressing its housing crisis. While it places a notable financial burden on high-value property transactions, it also provides an opportunity to make a meaningful impact on the community.

If you’re a property owner or investor in Los Angeles, understanding the ULA tax and proactively planning for its implications is essential. By staying informed and working with knowledgeable professionals, you can navigate these changes while contributing to the broader goal of making housing more accessible for all.