Los Angeles voters have approved Measure ULA, also known as “Mansion Tax,” a transfer tax that will affect the sales of both commercial and residential properties. In today’s blog, we take a closer look at the impact of this new tax on commercial real estate.
What Is the “Mansion Tax”?
Simply put, Measure ULA (United to House L.A.), also known as “Mansion Tax,” is a “Homelessness and Housing Solution Tax” to be imposed on the sale of residential and commercial properties in the city of Los Angeles that are $5 million or above.
Properties valued between $5 and $10 million will be taxed at 4%, while the tax for properties valued at $10 million or more will be 5.5%. This is a substantial increase compared to the current 0.45% tax.
The measure is expected to generate between $6 million and $1 billion annually, the majority of which will be used to construct new affordable housing and purchase existing buildings for housing.
Note that, although it is practically a fact that LA voters have approved Measure ULA, the new tax will begin impacting transactions only after April 1, 2023.
The Impact of L.A.’s “Mansion Tax” on Commercial Real Estate
While no doubt memorable, the “Mansion Tax” moniker isn’t completely accurate, as the new transfer tax would apply to both residential and commercial properties.
In fact, according to estimations cited by the Los Angeles Times, approximately half of the new taxes would come from the sale of commercial buildings.
Such a steep increase in the local transfer tax amounts will inevitably have a noticeable impact on the CRE industry. Some of the effects may include:
- Rent increases
- Costs that will be passed on to merchants
- Price corrections to account for the new tax
- Discouragement of investments and purchases
To learn more about the impact of Measure ULA, including how to factor it into your decision-making, contact SoCal CRE Team. Our specialists stand ready to help you make sense of your alternatives and craft a strategy that helps you achieve your goals.
Update: The City of Los Angeles has released an official FAQ for measure ULA. Please refer to it for answers to common questions and updates.
Disclaimer: This material is for general information and educational purposes only. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.
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