taxnews.ey.comPrint

28 May 2026

City of Santa Cruz real property transfer tax increase goes into effect July 1, 2026

  • Beginning July 1, 2026, the City of Santa Cruz, California will impose an additional graduated real property transfer tax of up to 2%, capped at $200,000, on real estate transactions exceeding $1.8 million under the Workforce Housing Affordability Act of 2025.
  • The new tax applies to the entire tax base and disallows the exclusion of continuing liens or encumbrances, significantly increasing transfer tax liabilities for high-value transactions.
  • Transactions over $4.5 million will generally be subject to the maximum 2% rate, resulting in materially higher upfront transfer taxes at closing compared to prior law.
 

Beginning July 1, 2026, the City of Santa Cruz, California (City) will impose an additional transfer tax of up to 2% of the value of real property on certain real estate transactions in excess of $1,800,000 under the Workforce Housing Affordability Act of 2025 (the WHAA Tax). The City caps the WHAA Tax at $200,000.

Taxpayers engaging in real estate transactions in Santa Cruz should carefully evaluate the impact of the WHAA Tax, including increased transaction costs, timing considerations and the application of exclusions or exemptions.

Background

The City currently imposes a real property transfer tax on transfers of real property at the rate of 0.055% ($0.275 for each $500 of consideration or fraction thereof). In November 2025, Santa Cruz voters approved Measure C, which establishes a new graduated transfer tax regime applicable to higher-value real estate transactions. This new regime also disallows the exclusion of continuing liens or encumbrances secured by real property.

The following chart provides an example of how the Santa Cruz transfer tax is calculated before July 1, 2026, and on or after that date:

 

Date of transaction

Consideration/value of real property

County tax (0.055%)

City tax (0.055%)

WHAA tax (0.5% - 2%)

Total tax

Before July 1, 2026

$ 2,500,000

$ 1,375

$1,375

$ 0

$ 2,750

$ 10,000,000

$ 5,500

$5,500

$ 0

$11,000

On or after July 1, 2026

$ 2,500,000

$ 1,375

$1,375

$ 12,500

$15,250

$ 10,000,000

$ 5,500

$ 5,500

$ 200,000

$ 211,000

As the chart illustrates, the WHAA Tax can result in a significant difference in the amount of transfer tax imposed. The WHAA Tax applies to the entire tax base, with the following graduated rate structure:

  • $1.8 million — $2.5 million: 0.5%
  • Over $2.5 million — $3.5 million: 1.0%
  • Over $3.5 million — $4.5 million: 1.5%
  • Over $4.5 million: 2.0% (capped at $200,000).

Implications

Taxpayers engaging in high-value real estate transactions within the City of Santa Cruz may face significantly higher transfer tax liabilities beginning July 1, 2026. Accordingly, taxpayers may want to reconsider the timing of their transactions.

In determining the WHAA Tax, taxpayers should consider their structures. For example, transfers involving partnerships and other pass-through entities warrant careful review to determine whether exclusions or exemptions apply. Additionally, the new graduated tax may create additional compliance and upfront cash flow considerations at closing.

* * * * * * * * * *
Contact Information

For additional information concerning this Alert, please contact:

State and Local Tax Group

Published by NTD’s Tax Technical Knowledge Services group; Chris DeZinno, legal editor

Document ID: 2026-1153

 

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

 

Copyright © 1996 – 2026, Ernst & Young LLP

 

All rights reserved. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP.

 

EY US Tax News Update Master Agreement | EY Privacy Statement