Wealthy Los Angeles homeowners with an eye on selling their homes are reeling over a new “mansion tax” that could put them on the hook for millions of dollars as part of an effort to aid the homeless, realtors say.
Thanks to the passage of United to House LA, any resident selling their mansion at $5 million and above starting April 1, 2023, will pay a transfer tax of up to 5.5%. This means a $10 million home sale would equate to $550,000 in taxes — the price of a brand-new home in many states other than California.
Proponents hope to raise between $600 million and $1 billion a year to fund affordable housing for the homeless and low-income earners.
“About 32% of City renters are severely cost-burdened, meaning they spend over 50% of their income on rent,” the initiative said. “As families overspend on housing costs, they have less in their budget for health care, childcare, education, healthy food, savings and retirement, and other household costs.”
On Nov. 8, 58% of Los Angeles voters agreed that the wealthy should pay to fix the situation. Now, homeowners are scrambling to find ways to avoid the pricey new penalty, realtors told the Los Angeles Times.
“Rich people are very clever. They know how to manage cash, and they have time to look for loopholes,” said Bret Parsons, an agent at the Compass real estate company and author of four books.
While some sellers are looking to unload the properties as soon as possible, others have decided to split the lots into separate parcels with different owners so that each piece would be under the $5 million mark.
Another thought is to sell the home for $4,999,999 and throw in the furniture for extra.
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The new tax is going to create a domino effect, affecting developers and builders who will go to other nearby wealthy cities and build homes, skipping the tax nightmare of Los Angeles.
“It creates market inefficiencies and breeds that type of behavior,” Jason Oppenheim of the Oppenheim Group told the Los Angeles Times.
He called the tax a travesty, saying the market will freeze on homes in the tax bracket except for people who plan on hanging on to the property for decades.
Los Angeles has a history of attempting to tax its way out of the homeless crisis without much success. Voters passed Proposition HHH in 2016, which funded a $1.2 billion affordable housing bond issue that has been rife with overruns and lack of progress.
The Los Angeles city controller found that each housing unit was costing upward of $837,000, with the project nowhere near completion.
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To make matters worse, homeless numbers have continued to rise, with Los Angeles having the second highest population in the nation at more than 63,706, a 2020 Department of Housing and Urban Development report said.
