On April 1, 2023, the city of Los Angeles implemented Measure ULA, a new tax initiative aimed at generating revenue for various public services and infrastructure projects. Like any tax policy, it has had its winners and losers since its implementation.
Winners:
1. Buyers at the Deadline: The new “Mansion Tax” spurred a frenzy of sales prior to April 1st to avoid the extra 4%-5.5% transfer tax. Buyers took advantage of and leveraged the deadline to score some incredible deals. (We ourselves closed two amazing deals for our clients prior to the tax going into effect.)
2. The Claim for Refund: Due to the current lawsuits in dispute of Measure ULA, there is now an ability to submit a protective claim for refund. This protective claim application form is being filed as a precautionary measure, in case the tax imposed by Section 21.9.2(b) of the Los Angeles Municipal Code is deemed unconstitutional (or found to violate any California or federal statute) or is rescinded for any other reason.
3. Sellers under $5M: The market shifted buyers into lower price ranges, which has helped keep the values steady with great homes still receiving multiple offers. This specific bracket is expected to be the last affected going forward into uncertain economic times.
Sold for $7,550,000 by Archie Ogani
Sold for $5,250,000 by Archie Ogani
Losers:
1. High-Income Individuals: Sellers prior to and after the tax have felt the impact on the value of their real estate. Their agents created “take it or leave it” scenarios before April 1st to avoid the tax. Properties sold at upwards of a 20-25% discount just to avoid giving the city 4%-5.5%. After April 1st, those who are in a position where they need to sell will have a hard time negotiating around the ULA transfer tax as they await the verdict on the pending lawsuit.
2. Commercial Real Estate: Commercial corporations, especially those with a substantial presence in Los Angeles, are directly affected, which influences their future business plans. In most real estate capital structures, around two-thirds of the funding comes from debt, while one third comes from equity. The newly introduced 5.5% transfer tax is levied on the equity portion, which could account for approximately 16.5% of an investor’s total proceeds after they have repaid their loan.
3. City of Los Angeles: The tax is now expected to generate $672 million in the upcoming fiscal year, according to a city estimate. That’s 25 percent less than the $900 million estimate provided to voters in November. The month of April 2023 only provided 10 sales over $5,000,000 compared to 126 in 2022! There is a clear reaction from the residents of LA to Measure ULA being passed.
The winners and losers of the Los Angeles Measure ULA Tax implemented on April 1, 2023, reflect the diverse impacts of tax policies. It is essential to strike a balance between generating revenue for public services and ensuring the sustainability and growth of businesses and individuals. Future evaluations and adjustments to Measure ULA may be necessary to ensure its effectiveness and address the concerns of those negatively affected.
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