L.A.'s rich are already scheming ways to avoid new 'mansion tax'

Abstract

Just weeks after Los Angeles voters backed a new measure that puts a one-time transfer tax on property sales above $5 million to generate money for affordable housing and homelessness prevention, the city's affluent homeowners are exploring potential ways of avoiding the tax. Known as Measure ULA - for "United to House LA" - the ordinance marketed as a "Mansion tax" will impose a 4% tax on property sales above $5 million, rising to 5.5% on sales above $10 million. So a $5-million sale would include a $200,000 tax, and a $10-million sale would include a $550,000 tax, which is typically paid by the seller. Since the tax only affects sales above $5 million, some homeowners are looking into splitting up their properties into smaller parcels with different ownership entities so they can avoid the tax altogether. If a seller wanted $7 million for their house, they could reach a deal with a buyer to sell it for $4.999 million, thus avoiding the tax, but then sell the furniture in the home for $2 million. It's a small percentage with a big impact; if the tax were to have been placed on sales in the city from June 2021 to June 2022, it would've raised over $900 million - a massive increase from the $207 million that existing transfer taxes currently raise annually at the rate of 0.45%. Data from the Multiple Listing Service suggests that single-family home sales would be affected about five times as much as condo sales. New York City charges a 2.075% tax paid by the seller for properties over $3 million as well as a mansion tax paid by the buyer that ranges from 1% to 3.9% depending on purchase price.