Tax Increases on High-Value Real Estate Deals in L.A. Are on the Horizon

Effective April 1, 2023, the City of Los Angeles will impose a so-called “Mansion Tax” upon commercial and residential property sales exceeding $5 million (certain housing, non-profit, and public entities will be exempt).

The new tax rate of 4% will apply to qualifying properties sold for more than $5 million but less than $10 million. Commercial and residential real estate traded for $10 million or more will be subject to a 5.5% tax rate. The Mansion Tax will not replace or modify existing documentary transfer taxes in L.A. Instead, it is to be an additional documentary transfer tax calculated based on the gross sale amount of property—existing debt will not reduce the tax basis.

By way of example, after April 1, the seller of a $10 million multi-family property in L.A. will be hit with a Mansion Tax bill of $550,000 (5.5% of the sale price)—this in addition to ordinary city and county transfer taxes that can total ~$56,000. Proceeds generated by the Mansion Tax—estimated to be between approximately $600 million and $1.1 billion annually—are intended to address the city’s homeless problem by funding affordable housing and tenant assistance programs.

As the April 1 effective date fast approaches, those thinking about selling real property in L.A. may want to act now to avoid the imposition of the Mansion Tax. That being said, the real estate professionals at Michelman & Robinson, LLP stand ready to provide any counsel you may need.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.