A Guide to LA’s Latest Addition to Transfer Taxes

California is leading the nation by developing funding sources that will contribute to addressing issues and reasons for large numbers of unhoused people living on the streets. As a Los Angeles native, I have witnessed the unprecedented increase in numbers of the unhoused and recognize the urgent need for this. Setting issues of fairness to the payor of the transfer tax aside for a few sentences, Let’s look at the details: On November 8, 2022, voters in the City of Los Angeles approved Proposition ULA. Following is a presentation of the ULA mansion tax and how it will affect home sales in Pacific Palisades, and the rest of the City of Los Angeles.

Proposition ULA Summary

Proposition ULA enacted a 4% tax on the sale or transfer of properties valued at more than $5 million and a 5.5% tax on the sale or transfer of properties valued at more than $10 million. The ballot measure established the House LA Fund to collect tax revenue and allocate funds to projects designed to prevent homelessness and to address housing availability at certain income thresholds. The ballot measure also created a citizen’s oversight committee tasked with developing funding guidelines, assessing project needs, and auditing expenditures.

The new tax does not replace existing transfer taxes, and applies to all properties sold, both commercial and residential.

Sample of transfer taxes on a $5,000,000 property:

LA County1.10% / $1000$55,000
LA City$4.50 / $1000$22,500
Prop ULA $5 million home 4% / $1000$200,000
 Total:$277,500

Sample of transfer taxes on a $10,000,000 property. 

LA County1.10% / $1000$110,000
LA City$4.50 / $1000$45,000
Prop ULA $10 million home 5.5% / $1000 $550,000
 Total:$705,000

An Increasing Number of Single-Family Homes Will Qualify for the ULA Mansion Tax. 

The new tax applies to commercial property too. Much of the revenue generated by the ULA mansion tax will come from the sale of Commercial Apartments selling for more than $10 million. 

Home owners in Los Angeles might be thinking: “My home is worth $4.3m and I don’t plan to sell it any time soon.” Your home may have increased in value and is now worth more than $5m. 

Consider this chart showing the growing number of homes sold in this price range in Pacific Palisades.

Homes sold In Pacific Palisades

Year< $5 million< $10 million
Sold in 2012194
Sold in 2017439
Sold in 20228222
Active 11/30 20224219

Who is responsible for paying the transfer Tax? 

Qualifying homes closing after April 1, 2023, will be subject to the transfer tax. Seller is responsible for paying. Collection of funds is open to negotiation. The seller may propose a split and post it on the MLS or other marketing material. The buyer may propose to pay the entire amount as an enticement to choose their offer. The  California Retail Purchase Agreement, Item 3. TERMS OF PURCHASE AND ALLOCATION OF COSTS, Section Q, (11) proposes who will pay and what percentage of the transfer tax. 

With this deadline looming, It is tempting to rush one’s home on to the market to avoid participation in this tax. My thoughts as realtor are: “by setting a time limit on selling, you are giving a bargaining chip to the buyer, and may end up losing a million to save $200 thousand (or $100 thousand if you split the tax).” 

In preparing this post, I have consulted a number of sources and had a few conversations with colleges. The final accounting of this tax is made during Escrow who collects and pays all transfer taxes from proceeds of the sale according to instructions made between buyer and seller. 

Closing note: Malibu, Topanga and Beverly Hills are not in Los Angeles City, so not affected by this tax change. Santa Monica passed its own measure GS, that taxes homes $8 million or higher.

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Title: How will the ULA Mansion Tax affect Pacific Palisades? | Dahl Realtors

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