United to House Los Angeles “Mansion Tax” Set to Begin in April
Susan Orloff, Principal 818.543.4760 | susan.orloff@ryan.com
Beginning April 1, 2023, a newly imposed tax known as the “Homelessness and Housing Solutions Tax” will take effect on transactions closed on any real property that is sold for more than $5 million within the city of Los Angeles. Investors contemplating a potential property sale have approximately four months to avoid being subjected to the new tax.
What does this mean for our clients? An increase in documentary transfer tax (DTT) calls for a 4% DTT on sales greater than $5 million and 5.5% DTT on sales of $10 million or greater. The revenue generated promises to speed up new construction and deliver housing to thousands of homeless people. Affordable housing builders and developers, mostly multifamily and commercial properties, could see changes to their strategy and decision-making processes. From now to April 1, the city of Los Angeles could see a significant increase in volume and property transactions. Investors may also begin looking outside the Los Angeles metro area to avoid the additional tax burdens.
Certain exemptions of the tax, such as qualified affordable housing and government entities, multifamily projects with a mix of affordable units, and market rates, will be able to move forward with their developments (without concerning themselves with the new tax). As of mid-November 2022, more than 40% of the apartments underway throughout Los Angeles were part of these projects, and this percentage may increase in the future because of the tax revenue being allocated toward the funding of income-restricted housing.
There are a multitude of scenarios that may affect your bottom line if you are buying or selling in the city of Los Angeles. Our experts can assist in navigating this new tax. Our team includes some of the most highly credentialed and experienced consultants in the industry.