For now, it looks as if LA’s “Mansion Tax” (aka Measure ULA) is here to stay. This week, a court ruling dismissed a challenge to Measure ULA which imposes an additional transfer tax on properties sold in the city to fund affordable housing and address homelessness.
To recap, the Measure ULA tax is calculated as 4% on property sales over $5 million and 5.5% on property sales over $10 million. Los Angeles County Superior Court Judge Barbara Scheper issued a tentative ruling that dismissed the challenge on Monday after hearing arguments from both parties.
Exemptions to the Mansion Tax
While the Mansion Tax is here to stay for now, it is important to note a few exemptions to this tax which exists for transfers to non-profit or government entities. According to the City, the Measure ULA Tax will be not be applicable on documents that convey real property within the City of Los Angeles if the transferee is described as a Qualified Affordable Housing Organization including:
- Non-profit entities 501(c)(3) with a history of affordable housing development or property management experience.
- Community Land Trusts and Limited-Equity Housing Cooperatives with a similar history.
- Limited partnerships or limited liability companies where a recognized 501(c)(3) nonprofit corporation, community land trust, or limited-equity housing cooperative is a general partner or managing member, and has a history of affordable housing development or property management experience.
- 501(c)(3) entities with IRS designation for at least 10 years and assets under $1 billion.
- Government entities at federal, state, or local levels.
- Sluggish Sales in the $5M+ Space: Market dynamics aside, the Mansion Tax has become a considerable motivation for owners of $5M+ properties to hold rather than sell. As of August, the transfer tax has generated $82 million from 144 transactions. An interesting conundrum exists when a $5,100,000 sale nets the same sale proceeds as a $4,900,000 sale, as it does with ULA in effect.
- Expect an Appeal: Attorneys for the Howard Jarvis Taxpayers Association and Newcastle, who initially filed the lawsuit, have indicated that they plan to appeal the decision although the timing of the appeal is unknown as of now.