Los Angeles Mansion Tax and Side Effects

 The Documentary Transfer Tax (DTT) or Mansion Tax will make sales in Los Angeles County far more costly. The purpose is to combat the homelessness that Los Angeles is currently battling and they opted for these taxes through sales transactions as their solution. To see how costly this will be to buyers and sellers, take a look at the example below:

Orange County DTT Tax is $10,470,000 x .0011 = $11,517.

 Under current law, in addition to the statewide DTT of .0011%, the city of Los

Angeles previously had imposed a separate DTT of .0045%, for a total DTT

imposed when a deed is recorded of .0056% of the consideration for the

property transferred.

 DTT Tax in the city of Los Angeles $10,470,000 x .0056 = $58,632

 Under the recently approved ULA, effective on transactions closing after April

1, 2023, in addition to the statewide DTT of .0011% and the previously

imposed .0045%, the voters have approved an additional 5.5% tax for

properties that sell over $10 Million, for a DTT of 6.06%.

 DTT Tax in the city of Los Angeles as of April 1, 2023, $10,470,000 x .0606 =

$634,482.

This would mean that if you are paying for the transfer tax on a house for $10,470,000, you would be paying a one time tax of $634,482. This wouldn't go towards your property taxes. It's just the DTT. Not exactly a drop in the bucket. If people weren't already cautious when purchasing real estate, they certainly will be now. 

The side effects are expected to be fewer flippers in Los Angeles. In general, it could mean less activity for the Los Angeles market as a whole as people are more cautious or calculated when making transactions in Los Angeles. There is some expectation that these flippers could end up coming down to Orange County as well as additional buyers and more transactions. This means that the Orange County market is likely to be better protected or has better resistance to any stress than the Los Angeles market has. Translation, if you think we're coming into a correction, Orange County will be protected. If you don't expect a correction, Orange County has better opportunity for appreciation without the mansion tax.