Impacts of Los Angeles Measure ULA
Major Increase Anticipated to Transfer Taxes on Transfers of Real Property on or after April 1, 2023, of Los Angeles City Real Estate where the Consideration or Value exceeds $5,000,000: Ballot Measure ULA Currently Ahead in the City of Los Angeles
Measure ULA, known as United to House L.A., imposes an additional tax on the sale of any real property on or after April 1, 2023, within the City of Los Angeles when the consideration or value of the real property exceeds $5 million. This tax is referred to in Measure ULA as the “Homelessness and Housing Solutions Tax” (the “HHS Tax”). The additional funds raised by the HHS Tax would go to programs to increase affordable housing in the City of Los Angeles. As of November 16, 2022, Measure ULA is ahead in the polls, and appears likely to pass.
For any transfers of real property that occur on or after April 1, 2023, where the consideration or value of the property being transferred exceeds $5 million, the new HHS Tax, if passed, will be imposed at a rate of 4% of the consideration or value of the property transferred. The HHS Tax rate jumps to 5.5% (for the entire consideration and not just the consideration beginning at $10 million) when the consideration or value of the transferred property is $10 million or more. [1] The HHS Tax is in addition to the Los Angeles City and County documentary transfer taxes that are already imposed on transfers of real property at a combined rate of $5.60 per $1,000 of value (or fraction thereof).
The HHS Tax is calculated based on the gross value of the real property transferred. As such, unlike the documentary transfer taxes imposed by the City and County of Los Angeles, which are calculated based on the net value of the property, the HHS Tax is not reduced by the amount of any continuing debt assumed by a buyer.
For example, upon the sale on or after April 1, 2023, of a parcel of real property located within the City of Los Angeles with a value of $5.5 million and debt assumed of $2.5 million, the transfer taxes owed would be $236,800 ($3,300 L.A. County transfer tax; $13,500 L.A. City transfer tax; and $220,000 HHS Tax). For a sale of property with a value of $10.5 million and debt assumed of $5.5 million, the tax would be $605,500 ($5,500 L.A. County transfer tax; $22,500 L.A. City transfer tax; and $577,500 HHS tax).
Please do not hesitate to contact us directly if you have any questions or would like to discuss the impacts of the HHS Tax in more detail.
[1] The text of the statute is somewhat ambiguous as currently drafted with respect to the 5.5% threshold. It is unclear whether the 5.5% HHS Tax rate applies when the consideration or value is $10 million, or if it only applies when the consideration or value exceeds $10 million. For purposes of this Alert, we have assumed that the 5.5% rate applies when the consideration or value is at $10 million or above.
