A growing trend in California? A Guide to Real Estate Transfer Tax Increases

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In addition to navigating the uncertainty of the current economic forecast, real estate professionals should also be aware of a growing trend in the Golden State: increases in real estate transfer taxes. Recently, many California cities have increased their real estate transfer tax rates, and some municipalities have upcoming election initiatives in their November 2022 ballot that, if approved, would significantly increase property transfer tax rates. transfers.

Cities seem to be motivated by two political concerns when raising transfer tax rates: (1) financial interests (when cities want to raise money to fund affordable housing and homelessness prevention programs) and (2) anti-gentrification concerns (when cities want to halt community displacement by raising tax rates on new real estate investments). These tax hikes could prove to be significant problems for real estate developers, investors, lenders and others in the industry.

Below is a summary of recently approved and proposed transfer tax increases in various cities in California.

San Francisco

Approved through campaign initiative (Proposition I) in 2020, the City and County of San Francisco established the following real estate transfer tax rates:

  • Transactions greater than $100 but less than or equal to $250,000, a tax rate of $2.50 for each $500 or part thereof (an approximate tax rate of 0.5% );
  • Transactions greater than $250,000 but less than $1 million, a tax rate of $3.40 for every $500 or portion thereof (an approximate tax rate of 0.68%) ;
  • Transactions with a value of at least $1 million but less than $5 million, a tax rate of $3.75 for every $500 or part thereof (a tax rate approximately 0.75%);
  • Transactions with a value of at least $5 million but less than $10 million, a tax rate of $11.25 for each $500 or part thereof (a tax rate approximately 2.25%);
  • Transactions with a value of at least $10 million but less than $25 million, a tax rate of $27.50 for each $500 or part thereof (a tax rate approximately 5.5%); and
  • Transaction of $25 million or more, a tax rate of $30.00 for every $500 or part thereof (an approximate tax rate of 6.0%).

(City and County of San Francisco, Office of the Accessor-Recorder, Transfer Tax, Available here.)

San Jose

The City of San Jose has a flat rate transfer tax of $1.65 per $500 or fraction of real estate value (a tax rate of approximately 0.33%). (Santa Clara County, Real Estate Recording, Available here.) However, in 2020 voters approved Measure E, which levies an additional transfer tax on properties worth $2 million or more; it went into effect July 1, 2020. (Santa Clara County, County Clerk’s Office, Measure E, Available here; San Jose, Measure E, Available here.) Specifically, Measure E established an additional tax of 0.75% on real property transfers of ownership between $2 million and $5 million, a 1.0% tax on transfers over $5 million and up to $10 million and a 1.5% tax on transfers over $10 million.

City of Culver

Effective April 1, 2021, Culver City, through an election initiative (Measure RE), increased its flat 0.45% tax on real estate transfers to the following rates:

  • 0.45% on transfers under $1.5 million;
  • 1.5% on transfers from $1.5M to $2,999,999;
  • 3.0% on transfers from $3 million to $9,999,999; and
  • 4.0% on transfers of $10 million or more.

(Culver City, Measure RE – November 3, 2022, Available here.)

Los Angeles (City)

The current rate of transfer tax in the City of Los Angeles is $4.50 per $1,000 of value (a tax rate of approximately 0.45%). (Los Angeles County Registrar-Recorder/County Clerk, General Information, Available here.) The Los Angeles City Council approved placement of an initiative, Measure ULA, in the November 2022 ballot. If approved, the measure ULA would provide an additional 4.0% tax on the transfer of properties in the City of Los Angeles worth more than $5 million and less than $10 million, while those valued at $10 million or more would be subject to a rate of 5.5%. (Los Angeles City Measure ULA, Available here.)

santa monica

In November 2020, Santa Monica voters approved Measure SM. It established a transfer tax of $3.00 per $1,000 or part thereof (a tax rate of 0.3%) on real estate transfers of less than $5 million and a tax of $6.00 per $1,000 or part thereof (a tax rate of 0.6%) on real estate transfers at $5 million and over. The SM measure went into effect March 1, 2021. (Santa Monica, Documentary Transfer Tax, Available here.)

This fall, Santa Monica voters will decide whether to raise the city’s transfer tax rates as two competing transfer tax initiatives feature in the city’s November 2022 ballot. Below are summaries of both measures:

  • Measure GS: If approved, this measure would establish a transfer tax of $56.00 per $1,000 (a 5.6% tax) of value for property transfers of $8 million or more.
  • Measure DT: If approved, this measure would establish a transfer tax of $25.00 per $1,000 (a 2.5% tax) of value for property transfers over $8 million. Unlike the GS measure, the DT measure has a sunset clause. The tax increase would only be effective until February 28, 2033, unless the Santa Monica City Council decides, by supermajority vote, to extend the DT measure for another five years. The DT measure also provides a partial tax exemption for not-for-profit corporations and community land trusts.

(City of Santa Monica, 2022 General Election, GS Measure, Available Here; City of Santa Monica, 2022 General Election GS Measure Text, Available Here; City of Santa Monica, Proposed DT Measure Text, Available Here; City of Santa Monica, General Election 2022 DT Measure, Available here.)

If both initiatives pass, the measure with the most votes becomes law; the winning measure would be effective March 1, 2023. (City of Santa Monica, Measure Proposal GS Text, Available here; City of Santa Monica, Measure Proposal DT Text, Available here.)

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