Vote NO on Initiative Ordinance ULA – Tax Hike on real property transfers over $5 million
There is an ill-conceived measure on the City of Los Angeles ballot this November. The measure will impose a:
- 4% tax on ANY real estate transfer/sale with a gross sales price of between $5 million to $10 million
- 5.5% tax on all sales over $10 million.
If passed, this tax would apply to homes, condos, office buildings, retail spaces, restaurants, hotels and apartment buildings. The money will go to developers and organizations that plan to build homeless housing and provide related services. LA taxpayers have already voted in two tax hikes – Measure H and Proposition HHH ($1.2 billion to create 10,000 homes only a fraction of which have been built). The money was wasted and the City did not deliver on its promised
The ballot measure is that it is based on the gross sale price as opposed to the profit the seller makes on the sale.
Residential real estate example
Assume a homeowner pays $7 million for a house (excluding any money spent on improvements) and sells the house for $6 million, resulting in a $1 million loss on the sale. If this ballot measure were to pass, in addition to their loss, the seller would have to pay an additional tax of $240,000 or 4% of the $6M gross sales price.
Apartment Building example
Assume a developer buys a parcel of land for $ 2million and builds a 10-unit apartment at a cost of $6 million. The developer then sells the project for $10 million or a $2 million gross profit. After carrying costs (~$500k), closing costs (~$600k) and an additional 5.5% Measure ULA tax of 5% ($550k), the developer makes only $350k. After Federal and State capital gains tax of roughly $120k, the developer nets $239k on his $8 million investment after 3 years or work. That’s less than a 1% net annual return which means the developer will simply seek projects elsewhere, not in Los Angeles. Or he’ll by risk-free government bonds that yield a higher return.
Why penalize a seller if they are already losing money or drive developers away?