The City of Los Angeles will begin charging a ‘Mansion Tax’ on commercial and residential real estate transactions over $5 million effective April 1, 2023. The existing documentary transfer taxes in Los Angeles will not be repealed or altered by the mansion tax. Instead, there will be an extra documentation transfer tax determined by the property’s gross sales price.
Homeowners and property owners considering selling real estate in Los Angeles and want to avoid paying the mansion tax may have to hurry up as the deadline for implementation of the mansion tax is fast approaching. A sale transaction made effective from April onwards will attract a higher tax outgo.
Till March 31, 2023, the documentary-transfer tax for Los Angeles stands at $4.50 (Per $1,000) or the Real Property Transfer Tax rate is 0.45%. It means, the Real Property Transfer Tax Rate continues to be 0.45% even after April 1, 2023, but in addition, there will be ‘Measure ULA Rate’ depending on the amount of transaction. Measure ULA is applicable on transactions that close on or after April 1, 2023.
The additional tax will depend on the amount of the real estate transaction. When the qualifying properties are sold for more than $5 million but are under $10 million, it will be subject to the new 4% tax rate. But, if the real estate transactions involving commercial and residential properties are worth $10 million or more, they will incur a 5.5% tax rate.
The new Measure ULA Tax rates are 1) an additional 4% for properties valued over $5,000,000, but under $10,000,000, and 2) an additional 5.5% for properties valued at $10,000,000 or above. So, effectively Total Applicable Rate will be 0.45% for transactions worth up to $5,000,000, 4.45% for transactions between $5,000,000 and $10,000,000 and 5.95% for transactions above $10,000,000.
A Documentary Transfer Tax is imposed on all documents that convey real property within the cities of Los Angeles County and is computed when the consideration or value of the interest or property conveyed exceeds one hundred dollars ($100), at the rate of fifty-five cents ($0.55) for each five hundred dollars ($500), or fractional part thereof. The additional tax rates are for specific cities including Culver City, Los Angeles, Pomona, Redondo Beach and Santa Monica and are calculated at the full $1.10 per $1000.
How to Calculate Documentary Transfer Tax
By way of illustration, starting on April 1, 2023, the seller of a $10 million multi-family house in Los Angeles will be liable for a $550,000 Mansion Tax bill or 5.5% of the transaction price.
Currently, on a property valued at $21,100, the amount of the County’s Documentary Tax would be calculated by rounding up the amount to $21,500, dividing $21,500 by $500, and multiplying that number by $0.55 for a total of $23.65.
However, if the property in this example were located within the City of Los Angeles, an additional $4.50 per $1,000 valuation will be assessed and collected at the time of recording for a total of $96.75. County and City transfer tax must be listed separately.