Measure ULA to Significantly Impact L.A. Real Estate Transactions

A new documentary transfer tax is coming to the City of Los Angeles. Measure ULA, commonly referred to as the “mansion tax,” will impose an additional tax of 4% on the sale or transfer of real estate property of $5 million or more, up to $10 million, and a 5.5% tax on the sale of transfer of property of $10 million and more. The new documentary transfer tax is effective for escrows closing on or after April 1, 2023, and is in addition to the existing documentary transfer tax levied by the City and County of Los Angeles, which is imposed at a combined rate of 0.56%.

Certain qualified affordable housing organizations that have demonstrated a strong track record of affordable housing development and/or property management will be exempt from the new documentary transfer tax. Government entities are also exempt from the new documentary transfer tax.

Measure ULA is expected to generate between $600 million and $1.1 billion annually. The tax revenue will be used for affordable housing production and homelessness prevention in the form of rent relief, income support, and legal counsel for tenants.

Other observations and recommendations from the real estate community with respect to Measure ULA include:

• It is believed that the new documentary transfer tax will be imposed upon the gross sale of the property, which is different than the existing documentary transfer tax.
• The $5 million and $10 million thresholds will be adjusted each year for inflation.
• Further exemptions could come for properties that have a mix of market and non-market rate units.
• Brokers are predicting a spike in sales and transfers from now through March 31, 2023, but that could be wishful thinking on their part.
• Analysts recommend that the new documentary transfer tax be incorporated into existing and future underwriting.

Thank you to Olga Zarney for her assistance with this blog post!