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December 7, 2022
2022-1833

California cities of Los Angeles and Santa Monica approve ballot measures to impose new real estate transfer taxes at significantly higher rates

  • The ballot measure approved in Los Angeles imposes new real estate transfer tax on certain sales or transfers of real property, including business property and residential property.
  • The ballot measure approved in Santa Monica added a third tier to its transfer tax rate structure.
  • Taxpayers intending to sell or transfer high-value property located in Los Angeles or Santa Monica should consider making the sale or transfer before the new tax rates take effect.

On November 8, 2022, California voters in Los Angeles and Santa Monica approved ballot measures to impose increased real estate transfer taxes on certain real property sales or transfers.

Los Angeles

The Funding Affordable Housing and Tenant Assistance Programs Through A Property Transfer Tax ballot initiative (Initiative), which almost 58% of voters approved, imposes additional taxes on certain real property sales or transfers in the City of Los Angeles. Currently, the total real estate transfer tax rate for properties in Los Angeles is 0.56% (0.45% city rate + 0.11% county rate). Effective for transfers on or after April 1, 2023, the Initiative imposes an additional tax of:

  • 4.0% on the sale or transfer of real property valued over $5 million but less than $10 million
  • 5.5% on the sale or transfer of real property valued at $10 million or greater

Unlike the current transfer tax, the new transfer tax will be based on the fair market value (FMV) of the property, without any deduction for debt on the property when transferred. The following grid summarizes the effects the increases:

Property value

Current .11% County tax

(FMV minus debt)

Current .45% City tax

(FMV minus debt)

 New 4% additional tax

(FMV)

New 5.5% additional tax

(FMV)

Total

Under $5m

X

X

  

0.56%

(FMV minus debt)

$5m — less than $10m

X

X

X

 

4.56%

(Blend of FMV and FMV minus debt)

$10m and over

X

X

 

X

6.06%

(Blend of FMV and FMV minus debt)

This additional tax seeks to raise funding for affordable housing and tenant-assistance programs. These rate increases are estimated to generate $600 million to $1.1 billion annually, with at least 92% of the funding directed at affordable housing and tenant-assistance programs. Additionally, the Initiative allows for certain exemptions from the tax for transfers to certain types of non-profit entities, community land trusts and cooperatives (among other similar entities).

Santa Monica

Voters in the City of Santa Monica passed Measure GS (referred to as the Funding for Homelessness Prevention, Affordable Housing, and Schools Ballot Measure) to increase the City's transfer tax revenue by adding a third tier to its transfer tax rate structure. Effective March 1, 2023, Santa Monica's three-tier transfer tax rate structure will be as follows:

  • 0.3% for sales or transfers when the consideration or value of the interest or property conveyed is less than $5 million
  • 0.6% for sales or transfers when the consideration or value of the interest or property conveyed is $5 million but less than $8 million
  • 5.6% for sales or transfers when the consideration or value of the interest or property conveyed is $8 million or more

The Santa Monica tax rates are added to the 0.11% Los Angeles County transfer tax rate, for a total maximum rate of 5.77% for sales or transfers when the consideration or value of the interest or property is $8 million or more. Furthermore, Santa Monica's real estate transfer tax base continues to exclude debt secured by the property that is transferred.

Implications

These ballot initiatives place Los Angeles and Santa Monica among the highest real estate transfer tax rates in the nation.

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Contact Information
For additional information concerning this Alert, please contact:
 
State and Local Taxation Group
   • Michele Randall (Michele.Randall@ey.com)
   • Laurie McGee Kowalski (Laurie.McGeeKowalski@ey.com)
   • Dale Kim (Dale.Kim@ey.com)
   • Christine Cagnina (Christine.Cagnina@ey.com)

Published by NTD’s Tax Technical Knowledge Services group; Jennifer A Brittenham, legal editor

 

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