Measure ULA: a new tax on LA real estate

How will this new significant transfer tax affect you? Find out.

Update by Felicia Chang

7 June 2023

In November 2022, Los Angeles residents approved a significant new transfer tax on real estate sales of $5 million or more. The new tax, known as Measure ULA, became law on January 1, 2023, and went into effect on April 1, 2023. Although sometimes referred to as the “Mansion Tax,” Measure ULA applies to all real estate sales, including residential, commercial, and vacant land transactions.

In passing Measure ULA, Los Angeles joins other California cities that have passed similar transfer tax increases in recent years, including Culver City, Santa Monica, San Francisco, and San Jose.

How does it work? 

As of April 1, 2023, sales of real property over $5 million in the City of Los Angeles are subject to a “Homelessness and Housing Solutions” tax. This tax is in addition to the existing combined documentary transfer tax of 0.56% currently imposed by both the City and County of Los Angeles. The tax is applied based on the following thresholds:

  • 4% for sales of property between $5 – $10 million 
  • 5.5% for sales of property $10 million or more

For example, the sale of a $20 million property after April 1 would be subject to a $112,000 documentary transfer tax, as well as an additional transfer tax of $1,100,000. Total transfer taxes alone for this sale would exceed $1,200,000.

It is important to note that, unlike the existing Los Angeles City and County documentary transfer tax, which excludes the value of any liens or encumbrances remaining on the property at the time of sale, Measure ULA applies to the entirety of the sale value, regardless of whether the property was sold at a gain or loss.

Are there any exceptions? 

Certain organizations are exempt, including qualified affordable housing organizations who have a history of developing or managing affordable housing, certain nonprofit organizations, and government agencies.

What impact is Measure ULA expected to have? 

Proponents estimate that Measure ULA will generate hundreds of millions of dollars in annual revenue to pay for affordable housing and tenant assistance programs. However, some critics have expressed skepticism over how effective Measure ULA will be in actually addressing the homelessness crisis, citing the perceived ineffectiveness of previous measures that have aimed to do the same thing.

Another criticism of Measure ULA is that it could have a chilling effect on sales of residential and commercial properties in the City of Los Angeles, driving potential developers or investors outside the city limits where the new tax will not apply. 

There are also a number of unknowns regarding how certain provisions of the Measure will be interpreted by the City of Los Angeles. For example, it is not clear whether the new law will apply to current exceptions to documentary transfer tax such as foreclosures or deeds in lieu of foreclosures. Additionally, it remains to be seen whether the City would permit transfers of separate interests in real estate (land and building structure) or splitting multi-parcel properties into separate transactions to fall below the $5 million and $10 million thresholds.

What actions should I take? 

Our Financial Planning team is here to help. Please contact us if you have any questions about Measure ULA or wish to discuss how it might impact your personal situation. Give us a call at 310-556-2502, email info@westmount.com, or contact your Westmount advisor directly. 

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Disclosures

This document was prepared by Westmount Partners, LLC (“Westmount”). Westmount is registered as an investment advisor with the U.S. Securities and Exchange Commission. Westmount believes the sources used in this document are reliable, but Westmount does not guarantee their accuracy. The information contained herein reflects subjective judgments, assumptions and Westmount ‘s opinion on the date made and may change without notice. Westmount undertakes no obligation to update the contents of this document. It is for information purposes only and should not be used or construed as investment, legal or tax advice, nor as an offer to sell or a solicitation of an offer to buy any security. No part of this document may be copied in any form, by any means, or redistributed, published, circulated, or commercially exploited in any manner without Westmount ‘s prior written consent.

If you have any comments or questions about this article, please contact us at info@westmount.com.