Los Angeles Elites Scrambled to Sell Homes ahead of New “Mansion Tax”
New tax likely to contribute to California’s ever increasing economic turmoil and affordable housing crisis.
Among all the other measures on the Los Angeles area’s ballot last November was a referendum in the city of Los Angeles for a “mansion tax” that would impose a new transaction tax on any real estate sale in excess of $5 million. The referendum passed with nearly 58% of the vote and called for the following:
- enact a 4% tax on properties sold or transferred for more than $5 million and a 5.5% tax on properties sold or transferred for more than $10 million;
- establish the House LA Fund within the city treasury to collect additional tax revenue; and
- allocate revenue to projects that address housing availability at certain income thresholds and homelessness prevention.
The more tightly things are grasped, the more likely they are to slip through the fingers. Predictably, the elite who normally support progressive measures found themselves scrambling to sell their homes before the measure, known as the “Mansion Tax,” kicks in.
The real estate market might be cooling nationally, but among the multimillionaire set in Los Angeles, it has been red hot — so much so that some sellers are getting burned.
Sellers have been throwing in brand new Bentleys and McLarens and drastically slashing prices in order to incentivize a quick close.
That’s because a so-called “mansion tax” goes into effect Saturday in Los Angeles, adding a 4% tax for sellers on homes that sell for between $5 million and $10 million and 5.5% on amounts $10 million and above.
The change will add hundreds of thousands — if not millions — of dollars in additional new transfer taxes for sellers, which will go to support a homeless housing measure Angelenos passed last November.
Supporters assert that the tax will bring in $900 million annually for subsidized housing in an area in which affordable housing is a significant issue.
Of course, supporters of tax increases count on monies they don’t yet have and fail to consider all the unintended consequences.
[The] tax applies to every real estate sale within Los Angeles that is not exempt – including not just mansions, but apartment complexes, retail and industrial buildings and other structures, causing some in the real-estate business to warn that developers will look elsewhere to build.
“So you add another 5% onto the equation – a lot of times the margins are very thin. If they don’t have the incentive to build, and people aren’t going to build for a loss, we’re going to have less housing,” said David Kramer, president of Hilton & Hyland, a real-estate broker that deals with homes that generally cost more than $10 million.
And he’s not referring to mansions, but to apartments. Kramer says large complexes that lease out homes can easily cost more than $10 million to build. Tacking on potentially millions more in taxes will scare developers away.
“When you include the tax, plus commissions, plus other taxes, potential sellers are looking at 11%,” said Aaron Kirman, CEO and Founder, AKG/Christie’s International Real Estate. “And that is a lot of money.”
The once robust tax-base is now fleeing the state in droves. Fiscal experts are beginning to notice the state’s economy is on edge.
Thousands of Californians have been laid off in the last few months, the cost of living is increasingly astronomical, and Gov. Gavin Newsom revealed in January that the state faced a $22.5 billion deficit in the 2023-24 fiscal year — a plummet from the $100 billion surplus a year ago.
“It’s an EKG,” Mr. Newsom said at the time, comparing a graph of the state’s revenue to the sharp spikes and drops of the heart’s electrical activity. “That sums up California’s tax structure. It sums up the boom-bust.”
The structure, which relies in large part on taxing the incomes of the wealthiest Californians, often translates into dips when Silicon Valley and Wall Street are uneasy, as they are now. Alphabet, the parent company of Google, one of the state’s most prominent corporations, said in January that it was cutting 12,000 workers worldwide, and Silicon Valley Bank, a key lender to tech start-ups, collapsed last month, sending the federal government scrambling to limit the fallout.
But, hey, if the progressives feel good about their choices . . . isn’t that what’s really important?
May God have mercy on California, as no one else will.
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Comments
Redistributive change is a trickle-down economic model at the democratic/dictatorial’s pleasure.
Not a problem. They’ll just pass another law rescinding the Law of Unintended Consequences. That’ll fix everything.
I wonder if the $5m threshold for this new ‘mansion’ tax is pegged to inflation? If not, as years go by this will eventually impact more and more people as the price of an average home continues to skyrocket under Bidenflation.
With inflation, $5 million in LA will get you a 2-bedroom house instead of the 3-bedroom one it gets you now.
The feds have quite a few tax thresholds that are obnoxiously not inflation adjusted (home sale exclusion, net investment income tax, social security), why not California?
“…Gov. Gavin Newsom revealed in January that the state faced a $22.5 billion deficit in the 2023-24 fiscal year — a plummet from the $100 billion surplus a year ago.”
A net loss of $125.5 BILLION in one year. Cook the books much for Newsome’s re-election the previous November?
Good grief.
Put Democrats in power and get Democrat policies with predictable outcomes. You people quitting California, please stay out of NC. We have our quota of Blue voters.
Most of the citizens fleeing California are Americans, in stark contrast to anyone that votes democrat.
Highly unlikely.
Leaving aside the wisdom of punitively taxing the sale of mansions, this is an insanely stupid way of doing it. Having the cutoffs occur at exact sales prices ($5 and $10 mill) and then taxing the whole amount from dollar one will eliminate the sale of homes in the lower $5 and $10 million ranges. It will also encourage the phony splitting up of properties and the use of prepaid long term leases (with low options to buy) as evasion methods. The proper way to do this would be to set lower limits and a higher tax rate, but only applying to the amount by which the sales price exceeds the limit.
LA’s solons are very stupid people.
Since the consequences of this law were known from the day it was passed, the “Saturday deadline” is meaningless. The law poisoned the resale of these properties on the day it was signed. Prospective buyers already know (unless they are incredibly stupid, which is always a possibility) that they will be taking a future bath on the sale of any property they buy before the deadline, so they’re going to lowball their offers to compensate for it when they purchase them.
Yikes. 4% additional friction in real estate transactions is gonna pinch sales. $5 million is a lot $ but aren’t there several parts of CA where that only gets you the equivalent of a high end suburban home elsewhere?
What’s another $200K amongst liberal friends? They always claim to support more taxes but they never what it to come from their pockets.
When you are “poor” it pays to live in California. Living the “California Dream” off of someone else”s dime. Wonder why Ca is a one-party quasi-communist “nation-state”?
Only the very poor and the very rich benefit from Socialism.
The very poor don’t even benefit. In a communist state, the poor are oppressed by circumstances (the fair redistribution of misery), and the well-off are oppressed by the government. The only people who are not oppressed ARE the government.
Oh, don’t be silly. LA only wants them to pay their fair share.
Whatever that mythological portion might turn out to be.
All of it
I think these leftist elites should be so happy to pay this tax to help fight inequity that they should VOLUNTARILY pay DOUBLE whatever the calculated tax is.
I’ll sell you this property for $4.99 million but you also have to buy this car parked in the garage for $5.01 million or it is no deal.
It will get like they, or, other creative methods.
Bitcoin? Maybe a 1031 exchange for a home elsewhere which just so happens to have safe full of cash?
Then you’d be hit with California’s sales tax of > 10% on the auto.
The more things like this are tried the more creative people get. Sell the house for $4.5 million, lease the new owners the pool for 1yr at $1 then sell them the pool for $4.5 million. A year later throw in the lawn for $2 million with the driveway a kicker to sweeten the deal.
Puts me in mind of that inventive eBay scam where the seller would put a desk up for sale for $200, but the real article for sale (and how this was communicated I never understood) was the vase of flowers on the desk in the photo, which turns out to be an historical antique urn, and your implied bid for the urn was 100 times your “bid on the desk.”
Let us have an appropriate moment of sympathy, reflecting the sympathy that coastal Californians have for the rest of us. This includes the poor mansion owners, those who voted for this idiocy, and those who tolerated the creation of “ballots” that surely were counted alongside real votes to ensure that this passed.
Ha Ha Ha Ha Ha Ha!
And a question for the Gentle Readers: How much of any money collected from this tax will actually be used to alleviate homelessness, and how much will go into the pockets of Leftist politicians and bureaucrats?
Subotai Bahadur
There are lots of conservatives in California, including Kevin Kiley at the national level who was just elected and looks like he will be one of the greats. (Just pushed a nationwide school choice amendment.) The author of this article, Leslie, is also from California.
The democrat party ruins everything that they gain influence on – particularly children. The exodus from California will continue, as Americans flee the democrat tyranny.
It’s Marxists class warfare picking back up
So hilariously predictably, how the narcissistic Dumb-o-crat elites hate forking over a penny more to the government than they have to.
Just like dotard-marionette, Biden, contriving a work-around to avoid paying half a million bucks in taxes on his speaking fee income.
Trust the vile Dumb-o-crats to zealously guard money from the tax collector — when it’s there own wealth at issue.
“May God have mercy on California, as no one else will.”
Memo for California: If you’re seeking mercy from God, be advised that He won’t be your cuddly New Testament God. He’ll be your very p*ssed off Old Testament God.
The one thing progressives don’t understand about the rich is, they know how to avoid paying taxes, they have the best tax attorneys and the have the best accountants whose only jobs is to cut down the tax liability. The only ones hurt will be the little guy, again, I wonder who pays taxes on empty mansions?