As the April 1 start date for the Measure ULA transfer tax on luxury homes approaches, many are scrambling to find ways to deal with this new tax.
With the luxury housing market in Los Angeles slowing down, there is a sense of urgency to sell homes valued over $5m. The tax itself is a 4 percent levy on homes above $5 million, increasing to 5.5 percent on deals above $10 million. Supporters of the tax claim it will generate around $1 billion annually to address the city's homelessness crisis and increase the availability of affordable housing. Click here for more info on the Measure ULA
Real estate brokerages are being cautious about and not giving legal or financial advice. However, tax professionals are exploring various loopholes. Ideas in circulation include splitting up a deal into two transactions, one for the land and another for the structures on the land. The idea is to keep the sums paid for different portions of a listing below Measure ULA’s tax threshold, according to a recent TRD article.
Another idea is for separate buyers or trusts to purchase a property with a tenancy in common plan, where separate owners take shares of a property. With this scenario, escrows would not close at the same time, but rather within a few days of each other. Separate transactions from the individual trusts would whittle down a property’s price so it wouldn’t pass Measure ULA’s threshold.
The Measure ULA tax is expected to affect only 4 percent of the Los Angeles housing market, according to a research paper released by the tax's authors. The paper also claims the tax will create a construction boom of affordable housing, resulting in the development of 26,000 affordable housing units and 43,000 new construction jobs over the next decade.
Despite these claims, some are concerned that the tax will disincentivize development and hurt the economy, with plumbers, construction crews, and architects losing out on lucrative projects. Some developers have already pulled out of deals due to the uncertainty surrounding the tax.
As the clock ticks down to April 1, the luxury housing market in Los Angeles remains uncertain, and real estate professionals and their clients are left grappling with the potential implications of the Measure ULA transfer tax.
In the world of real estate, brokers and agents are often called upon to offer advice to their clients on various matters, including legal and financial issues. However, it is important o understand that there are limitations to the advice they can offer, particularly when it comes to legal and financial matters, and to direct any questions related to legal or financial matters to licensed attorneys or certified public accountants (CPAs). We have referrals to advisors that specialize in this matter, so please contact us for info.
FRONTGATE REAL ESTATE AND SIDE INC DOES NOT PROVIDE TAX, LEGAL OR ACCOUNTING ADVICE. THIS MATERIAL HAS BEEN PREPARED FOR INFORMATIONAL PURPOSES ONLY, AND IS NOT INTENDED TO PROVIDE, AND SHOULD NOT BE RELIED ON FOR, TAX, LEGAL OR ACCOUNTING ADVICE. YOU SHOULD CONSULT YOUR OWN TAX, LEGAL AND ACCOUNTING ADVISORS BEFORE ENGAGING IN ANY TRANSACTION.