The City of Los Angeles will begin collecting a ‘Mansion Tax’ on commercial and residential real estate transactions over $5 million beginning April 1, 2023. Existing document transfer taxes in Los Angeles will not be repealed nor modified by the mansion tax. Instead, there will be an additional documentation transfer tax determined by the gross sales price of the property.
Home and property owners who are considering selling real estate in Los Angeles and wish to avoid paying the mansion tax may need to hurry as the deadline for the implementation of the mansion tax is fast approaching. A sale transaction made effective as of April will attract a higher tax output.
Through March 31, 2023, the document transfer tax for Los Angeles is $4.50 (per $1,000) or the real property transfer tax rate is 0.45%. That is, the Real Estate Transfer Tax Rate is still 0.45% even after April 1, 2023, but in addition, there will be a ‘ULA Measured Rate’ depending on the amount of the transaction. The ULA Measure applies to transactions that close on or after April 1, 2023.
The additional tax will depend on the amount of the real estate transaction. When qualifying properties sell for more than $5 million but are under $10 million, they will be subject to the new 4% tax rate. But, if real estate transactions involving commercial and residential properties are worth $10 million or more, they will incur a 5.5% tax rate.
The new tax rates for Measure ULA are 1) an additional 4% for property valued at more than $5,000,000, but less than $10,000,000, and 2) an additional 5.5% for property valued at $10,000,000 or more. So, effectively, the Total Applicable Rate will be 0.45% for transactions valued up to $5,000,000, 4.45% for transactions between $5,000,000 and $10,000,000, and 5.95% for transactions above $10,000,000.
A Documentary Transfer Tax is imposed on all documents that transfer real property within the cities of Los Angeles County and is computed when the consideration or value of the interest or property transferred exceeds one hundred dollars ($100), at the rate of fifty-five cents ($0.55) for each five hundred dollars ($500), or fractional part thereof. Additional tax rates are for specific cities, including Culver City, Los Angeles, Pomona, Redondo Beach, and Santa Monica, and are calculated at $1.10 per $1,000.
How to Calculate Documentary Transfer Tax
By way of illustration, effective April 1, 2023, the seller of a $10 million multi-family home in Los Angeles will be liable for a mansion tax bill of $550,000 or 5.5% of the transaction price.
Currently, on a property valued at $21,100, the amount of the County Documentary Tax would be calculated by rounding the amount to $21,500, dividing $21,500 by $500, and multiplying that number by $0.55 for a total of $23.65.
However, if the property in this example is located within the City of Los Angeles, an additional $4.50 per $1,000 of assessment will be assessed and collected at time of registration for a total of $96.75. County and city transfer taxes must be listed separately.