Los Angeles revenue hit as 4% transfer tax on property over $5M curbs sales 70%

[rangerrebew]

Los Angeles revenue hit as 4% transfer tax on property over $5M curbs sales 70%
Story by Kenneth Schrupp • 14h


(The Center Square) - The City of Los Angeles’s “mansion tax” on all property over $5.15 million has led to an over 70% decrease in affected sales, resulting in significant foregone property tax revenue, according to a research preview of county assessor data from Commonwealth Title.
 
Mott Smith, a real estate development professor at the Sol Price School of Public Policy at the University of Southern California, analyzed the effect of Measure ULA, a voter-approved tax that was marketed as a “mansion” tax to fund social services, but applies to all real estate — including offices, industrial space, shopping centers, and multifamily buildings.

Smith found affected sales dropped by over 70% since April of 2023, when the measure took effect, with a worse decline for multifamily, commercial, and industrial space, while sales increased in the rest of the county and continued as normal for properties under the threshold.

https://www.msn.com/en-us/money/markets/los-angeles-revenue-hit-as-4-transfer-tax-on-property-over-5m-curbs-sales-70/ar-AA1uSyCy?ocid=msedgdhp&pc=HCTS&cvid=5ecb65343f4d4b60b8f7d06a1a11ceac&ei=30

[PeteS in CA]

The City of Los Angeles’s “mansion tax” on all property over $5.15 million has led to an over 70% decrease in affected sales, resulting in significant foregone property tax revenue, ...

The reason property tax revenue is affected is Proposition 13 plus rising home prices. When someone buys a home, their property tax assessment is set to the price they paid. After that the increase in assessment is capped (2% per year?), while the market value of the property may increase by a greater percentage. Over time, the gap between the taxable value and the market value increases (in a housing market where prices are rising).

In that context, a sale not happening means the taxable assessed value is not reset, and the tax revenue remains what it was instead of jumping up significantly. Multiply that effect by however many people held onto their $5.15 million homes, and the City of Los Angeles' envy-and-greed is probably costing the city millions in property tax revenue.

[Hoodat]

@PeteS in CA

Re:  Prop 13

It is my understanding that this property tax freeze (+2%) remains intact as long as one wall of a house remains standing.  Consider a house purchased for $100k.  The new owner levels the house save for one wall, and then builds a $1 million house that utilizes that one old wall.  And the property tax remains fixed based on the original $100k purchase price and not the new $1 million structure.

Is this correct?

[PeteS in CA]

@PeteS in CA

Re:  Prop 13

It is my understanding that this property tax freeze (+2%) remains intact as long as one wall of a house remains standing.  Consider a house purchased for $100k.  The new owner levels the house save for one wall, and then builds a $1 million house that utilizes that one old wall.  And the property tax remains fixed based on the original $100k purchase price and not the new $1 million structure.

Is this correct?

My understanding is that this is incorrect. Significant additions to a home, e.g. adding a room, increases the property tax, with the addition being taxed at the then-current added market value.

So in a practical example of a 450 square-foot addition, the property tax equation would be:

(tax on original price plus # annual increases) + (tax on the added value of the addition plus # annual increases)

[Hoodat]

Thank you for the correction.  I know quite a few rich California folks have done this.  There's still a tax benefit, but not nearly as much as I had thought.