Quick Answer: The California Mansion Tax, specifically Los Angeles’s Measure ULA, imposes a significant transfer tax on property sales over $5 million, with a 4% tax for properties between $5 million and $10 million and 5.5% for properties over $10 million, applied to the gross sales price. This is not a capital gains tax and applies to both residential and commercial properties, directly impacting the net proceeds of your sale.
Key Takeaways: Navigating Los Angeles’s Measure ULA
- Significant Financial Impact: Sellers of properties over $5 million in Los Angeles face substantial transfer taxes, potentially amounting to hundreds of thousands of dollars and directly reducing net proceeds.
- Not Just Mansions: Despite its common name, the tax applies to any property type—residential or commercial—exceeding the $5 million threshold, affecting a broad range of high-value transactions.
- Los Angeles Specific: This tax is not statewide; it is a Los Angeles city ordinance (Measure ULA), although other California cities may consider similar measures in the future.
- Transfer Tax, Not Capital Gains: This is a tax on the transaction itself, not on the profit from the sale, and it is due at the close of escrow.
- Market Implications: The tax has generated controversy and may influence buyer and seller behavior, potentially affecting market liquidity and pricing strategies in the luxury segment.
Over nearly two decades of selling luxury homes, I have worked with hundreds of affluent individuals buying and selling second homes and investment properties. One of the most common questions I hear, even from those outside Hawaii, is how new taxes in places like California impact the broader luxury real estate market.
The answer is not guesswork; it is a structured approach based on years of analyzing market dynamics. Rather than simply describing the process, let me address the most common questions sellers and buyers ask about the California Mansion Tax and explain how it affects high-value transactions.
How Much Will the Los Angeles Mansion Tax Cost If I Sell My High-Value Home?
Quick Answer: Expect to pay 4% of the gross sales price for properties between $5 million and $10 million, and 5.5% for properties over $10 million, deducted directly from your sale proceeds.
When selling a luxury property, every percentage point matters. The Los Angeles Mansion Tax, officially known as Measure ULA, is not a minor fee; it represents a substantial portion of the gross sales price. For properties selling between $5 million and $10 million, the tax rate is 4%. For properties exceeding $10 million, the rate increases to 5.5%. The tax applies to the entire sales price, not just the portion above the threshold.
This is a critical distinction. It is not a tiered tax where only the amount above $5 million is taxed. For example, if a property sells for $6 million, the 4% rate applies to the full $6 million. That amount can significantly reduce net proceeds. Understanding these costs in advance is essential for setting realistic expectations and planning accordingly.
Example: A luxury home selling for $12 million would be subject to a 5.5% transfer tax on the full amount. That equals $660,000 in transfer tax alone, separate from real estate commissions, escrow fees, and potential capital gains taxes.
Does the Los Angeles Mansion Tax Apply Only to Residential Properties?
Quick Answer: No. Measure ULA applies to both residential and commercial properties, including vacant land, if the sale price exceeds $5 million.
Despite the nickname “Mansion Tax,” the ordinance is not limited to single-family luxury homes. It applies broadly to qualifying property transfers within the City of Los Angeles, regardless of property type. Commercial buildings, multi-family properties, mixed-use developments, and vacant land may all be subject to the tax if the transaction meets the threshold.
This broader scope means investors, developers, and commercial property owners must account for the tax when evaluating acquisition and disposition strategies. In high-value transactions, the additional transfer cost can influence pricing negotiations, buyer demand, and overall deal structure.
