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Understanding The New “Mansion” Tax in Los Angeles

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Courtesy of our title partners at USA National Title

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In the City of Los Angeles, ULA (United to House LA) enacted a 4% tax on the sale or transfer of any properties valued at more than $5,000,000 and a 5.5% tax on the sale or transfer of any properties valued at more than $10,000,000. The ballot measure established the House LA Fund to collect tax revenue and allocate funds to projects designed to prevent homelessness and to address housing availability at certain income thresholds. The ballot measure also created a citizen’s oversight committee tasked with developing funding guidelines, assessing project needs, and auditing expenditures.

Los Angeles City tax (called the “ULA Tax”) will be effective on April 1, 2023*

Current tax rate, including the County tax, is $5.60 per $1,000 of purchase price So the transfer tax on a $6,000,000 property is $33,600.

The new additional LA City tax rate with sales over $5,000,000 to $10,000,000 will add an additional 4% of the purchase price. The new transfer tax for that same $6,000,000 sale will be $273,600.  For sales over $10,000,000, the new tax rate will be an additional 5.5% of the purchase price. So, the transfer tax for a $12,000,000 property will go from $67,200 to $727,200.

Sale/Transfer Property Value City of Los Angeles Current Transfer Tax Rate City of Los Angeles Measure ULA Tax Rate City of Santa Monica Current Transfer Tax Rate City of Santa Monica Measure GS Tax Rate
$6,000,000 $273,600 $33,600 $42,600 $42,600
$8,000,000 $44,800 $364,800 $56,800 $456,800
$10,000,000 $56,000 $606,000 $71,000 $571,000

Measure GS added Chapter 4.90 to the Santa Monica Municipal Code to establish designated funds for schools, homelessness prevention, and affordable housing. It also added an eleven-member resident oversight committee. It amended Chapter 6.96 to provide a third tier transfer tax rate of $56.00 per $1,000 of value for property transfers of $8,000,000 or more, providing an estimated $50,000,000 annually for homelessness prevention, affordable housing, and schools, until repealed.

Santa Monica City tax (called the “Measure GS Tax”) will be effective on March 1, 2023**

Current tax rate, including the County tax, is Tier 1 at $4.10 per $1,000 and Tier 2 at $7.10 per $1,000 of the purchase price. Currently, the transfer tax on a $8,000,000 property is $56,800.

The new additional 3rd Tier Santa Monica City tax rate with a sales price over $8,000,000 will be $56.00 per $1,000. The new transfer tax on the same $8,000,000 sale will go up to $456,800.

In a lawsuit filed Wednesday December 28,2022, lawyers representing the Howard Jarvis Taxpayers Assn. and the Apartment Assn. of Greater Los Angeles argue that the documentary transfer tax, which is slated to go into effect in April, violates the California Constitution. California L.A. to vote on ‘mansion tax’ to raise money for housing.

The groups’ attorneys argue that “great and irreparable harm will result to plaintiffs, and to all Los Angeles property
owners in being required to pay unconstitutionally imposed taxes.”

Information on Property Tax Penalty Relief

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On March 4, 2020, California issued a State of Emergency as a result of COVID-19.Executive Order N-61-20

Many taxpayers have suffered financial hardship as a result of COVID-19, which has undermined their ability to pay property
taxes when those taxes have become due.

Under the provisions of Government Code section 8571, strict compliance with various statutes specified in this order would
prevent, hinder, or delay appropriate actions to prevent and mitigate the effects of the COVID-19 pandemic.

Governor of the State of California, in accordance with Government Code sections 8567, 8571, and 8627, does hereby issue the
following Order to become effective immediately it is hereby ordered that:

1) Division 1 of the Revenue and Taxation Code (including sections 75.52, 2610.5, 2618, 2922, 2705, and 4103) is suspended
until May 6, 2021 to the extent that it requires a tax collector to impose penalties, costs, or interest for the failure to pay
taxes on property on the secured or unsecured roll, or to pay a supplemental bill, before the date and time such taxes
became delinquent, and a tax collector shall cancel such penalties, costs, and interest provided all of the following conditions
are satisfied:

i) The property for which taxes were not paid is either:

a. residential real property occupied by the taxpayer, or
b. real property owned and operated by a taxpayer that qualifies as a small business under the Small Business

Administration’s Regulations, Code of Federal Regulations, Title 13, section 121.201;

ii) The taxes owed on the property in question were not delinquent prior to March 4, 2020;
iii) The taxpayer timely files a claim for relief in a form and manner prescribed by the tax collector; and
iv) The taxpayer demonstrates to the satisfaction of the tax collector that the taxpayer has suffered economic hardship, or
was otherwise unable to tender payment of taxes in a timely fashion, due to the COVID-19 pandemic, or any local, state, or federal government response to COVID-19.
Revenue and Taxation Code section 4985.2, subdivision (a) is suspended to the extent necessary to implement this Paragraph 1.

2) The taxes owed on a property by a taxpayer making payments pursuant to an installment plan under Revenue and Taxation Code section 4837.5 or Revenue and Taxation Code, Part 7, Chapter 3 (commencing with section 4186) shall not be considered delinquent under Paragraph 1 of this Order if, on or before March 4, 2020, all payments required by the plan were made.
3) Paragraph 1 shall not apply to any property for which taxes are paid through an impound account.
4) Revenue and Taxation Code section 441, subdivision (b), and section 463, subdivision (a), are suspended until May 31, 2020
to the extent that either imposes a penalty for failing to file a property statement on or before May 7, 2020, such that no
penalty shall be imposed upon a taxpayer if the taxpayer files a personal property tax statement as required by
Revenue and Taxation Code section 441(a) on or before May 31, 2020.

It is further noted that, as soon as possible, this Order shall be filed in the Office of the Secretary of State, and that widespread publicity and notice will be given.

This Order is not intended to excuse any taxpayer from the duty to pay any taxes separate and apart from any penalty, costs, or interest resulting from the failure to pay taxes before the date and time such taxes became delinquent.

This Order is not intended to limit or restrict the existing authority of a tax collector, auditor, or board of supervisors to waive, cancel, or excuse penalties, costs, or interest.

This Order is not intended to, and does not, create any rights or benefits, substantive or procedural, enforceable at law or in equity, against the State of California, its agencies, departments, entities, officers, employees, or any other person.

 

Information provided by USA National Title

Trust Transactions in Real Estate

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Are you considering selling a home that is in a “Family Trust.” It’s not too early to consider challenges that might occur at the close involving paperworkthe Trust ownership. So, what should you do to insure a smooth transaction?

It’s always a good idea to have either a title officer or ATO at your title company review the trust documentation. A realtor can help put you in touch with the right people.  Depending upon your transaction, the age of the trust and the parties involved, this may include:

  • A complete copy of the trust document.
  • A trust certification.
  • Death certificate for any deceasedtrustee
  • Physician’s statement relative to capacity of a trustee under doctor’s care.

Normally, a title company with knowledge of trust law will not require you or your client to provide a complete copy of the trust document. This type of request should only occur when there is some sort of anomaly in the title, such as the death of one or more of the original trustees. It’s good to understand, when this request is made, that the title company has no desire to see what your assets are, but rather that the terms of the trust, after death of the original trustee(s), are properly carried out. It will also be necessary, if one or more of the original trustees have died, to produce a county certified copy of the death certificate for these parties. This should be supplied to escrow, along with a copy of the deed wherein the trust acquired title, so that a form called an “Affidavit, Death of Trustee, which must be recorded with the other transaction documents at close of escrow can be prepared.

If the original trustees are still living, all a title company will normally require is a trust certification. Title companies usually provide this form for those preliminary reports where a trust is in title. It protects both the escrow company and the title company from legal recourse should the action taken by the record trustee be disallowed under the terms of the trust, should the trust have been revoked “off record” or should the record trustee have been removed without constructive notice (recordation).

Should a trustee be incapacitated, physically or mentally, you will be required to obtain a statement from his/her physician as to his/her competency to understand and execute the transaction documents. Most often, trusts will provide that, should a physician state that the trustee is not competent to handle trust affairs (or their own affairs) a “Successor Trustee” will be allowed (required) to act. The name(s) of the successor trustee(s) can be found in the body of the trust, generally in a section marked “Successor Trustee.”

It is also a good idea to confirm that all of the signatories necessary for execution of transaction documents will be available and “in town” throughout the transaction. This is because, generally speaking, a power of attorney cannot be used to execute documents on behalf of the trustee. The only time this is allowable is if the trust expressly states that a power of attorney can be used.

Some trusts have the power of attorney form incorporated in the trust document. Again, there must be an express provision for use of the power of Attorney within the body of the trust. A better alternative to the Power of Attorney would be for the “vacationing” Trustee to temporarily “resign” as trustee and allow the Successor Trustee to act in his/her stead. As a last resort, if there is no Successor trustee, the absent Trustee, before leaving town, can execute an Amendment to the Trust expressly providing for use of a power of attorney.

Title to trust property, according to California State law, must be held in the name of the trustee(s) of the trust: “John Smith and Mary Smith, Trustees of the Smith Trust under declaration dated 6-4-1974” is a correct vesting. “The Smith Family Trust” is not a correct vesting. If ever in doubt as to how to vest trust property, call your title officer. People have many reasons for transferring property into a trust. Many people do this to avoid or reduce certain taxes. As to real property, keep in mind that holding property in a trust does not guarantee protection from reassessment of real property taxes under Prop. 13. This reassessment does not normally occur at the time the property is transferred into the trust,  but can occur upon the death of one or more of the trustees or upon distribution of the trust property to thebeneficiaries under the trust. For those trusts where the original trustees are parents of the beneficiaries, this reassessment can be avoided by filing an exclusion under Prop. 58, a form for which is readily available on the county assessor’s web site. There are also many income tax ramifications involved in holding property, real and personal in a trust.

In matters involving trust property and taxation, it is always wise to consult legal counsel before choosing to create and transfer property into a trust.

Why Buy a Home Instead of Rent?

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Information for First Time Home Buyers

When you’re thinking about buying your first home, it’s essential for you to be confident in your decision to buy instead of rent. However, you may not know about the many great reasons to buy a home! Here are just a few of them:

Smart Investment
When you invest in a home, it offers the possibility for appreciation in value. The equity becomes yours when you’re still paying off your mortgage. You even get to live in it while your investment matures.

Tax Advantages
Since both mortgage interest and property taxes are tax deductible, homeownership can save you significant amounts of money every year.

Planned Housing Costs
You decide how much you spend on your home, including repairs and improvements. Unlike renters, homeowners with a fixed-rate loan can lock in their monthly housing costs.

Improvements to Your Taste
You can choose which improvements to make your own property, such as a deck, kitchen remodel, or new paint, instead of needing permission from your landlord.

If you have more questions about making the decision to buy a home, please feel free to call or email.  Back to the first time buyers tips and information page

View the current homes for sale in the South Bay or search by city, area or neighborhood

 

What is Mello-Roos?

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What is Mello-Roos?

Background:
In 1978 Californians enacted Proposition 13, which limited the ability of local public agencies to increase property taxes based on a property’s assessed value. In 1982, the Mello-Roos Community Facilities Act of 1982 (Government Code §53311-53368.3) was created to provide an alternate method of financing needed improvements and services.

Do South Bay Communities Have Mello Roos?
Some do including the popular communities of Three Sixty South Bay and Fusion at South Bay

The Mello-Roos Community Facilities Act of 1982
The Act allows any county, city, special district, school district or joint powers authority to establish a Mello-Roos Community Facilities District (a “CFD”) which allows for financing of public improvements and services. The services and improvements that Mello-Roos CFDs can finance include streets, sewer systems and other basic infrastructure, police protection, fire protection, ambulance services, schools, parks, libraries, museums and other cultural facilities. By law, the CFD is also entitled to recover expenses needed to form the CFD and administer the annual special taxes and bonded debt.

Why is a Mello-Roos CFD Needed?
A CFD is created to finance public improvements and services when no other source of money is available. CFDs are normally formed in undeveloped areas and are used to build roads and install water and sewer systems so that new homes or commercial space can be built. CFDs are also used in older areas to finance new schools or other additions to the
community.

How is a Mello-Roos CFD Formed?
A CFD is created by a sponsoring local government agency. The proposed district will include all properties that will benefit from the improvements to be constructed or the services to be provided. A CFD cannot be formed without a two-thirds majority vote of residents living within the proposed boundaries. Or, if there are fewer than 12 residents, the vote is instead conducted of current landowners. In many cases, that may be a single owner or developer. Once approved, a Special Tax Lien is placed against each property in the CFD. Property owners then pay a Special Tax each year. If the project cost is high, municipal bonds will be sold by the CFD to provide the large amount of money initially needed to build the improvements or fund the services.

How is the Annual Charge Determined?
By law (Prop. 13), the Special Tax cannot be directly based on the value of the property. Special Taxes instead are based on mathematical formulas that take into account property characteristics such as use of the property, square footage of the structure and lot size. The formula is defined at the time of formation, and will include a maximum special tax amount and a percentage maximum annual increase.

How Long Will the Charge Continue?
If bonds were issued by the CFD, special taxes will be charged annually until the bonds are paid off in full. Often, after bonds are paid off, a CFD will continue to charge a reduced fee to maintain the improvements.

IMPORTANT TO KNOW:
• Rights to Accelerated Foreclosure. It is important for CFD property owners to pay their tax bill on time. The CFD has the right (and if bonds are issued, the obligation) to foreclose on property when special taxes are delinquent for more than 90 days. Additionally, any costs of collection and penalties must be paid by the delinquent property owner. This is considerably faster than the standard 5 year waiting period on county ad valorem taxes.
• Disclosure Requirement for Sellers (California Civil Code §1102.6). When reselling a property in a CFD, the seller must make a “good faith effort” to obtain a Notice of Special Tax from the local agency that levies the Special Tax, and provide it to the buyer.

Proposition 13 Information

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Proposition 13 and it’s Impact on You

Whether you bought your home last month or have owned your home for twenty years, if you live in the California Proposition 13 is protecting you.

The first benefit is that even the most recent homebuyers pay about 1/3 of the property taxes that they would without Proposition 13. The initiative simply keeps the general level of property taxation lower and fairer. Without Proposition 13, many new buyers could not afford both their mortgage payments and their taxes.

Proposition 13 also gives new homeowners long-term security by providing predictability in taxes. Property taxes are levied once a year. The tax “rate” is applied to the value of your home to determine your tax bill. Proposition 13 helps you by limiting the maximum tax rate to 1%. If a home has a value of $250,000, the owner will see a tax bill of $2,500. But what happens when the value of your property goes up? In other states, if the value of your home doubles, so does your property tax bill. But because of Proposition 13, here in California the taxable value of your home can only go up 2% per year.

Thanks to Proposition 13, new buyers know exactly what their taxes will be next year, in five years, and in 30 years — reassuring information for those who plan to live in their homes when they retire.

But this wasn’t always the case. Prior to the passage of Proposition 13, many homeowners shuddered in fear when their property tax bills arrived. Tax increases of 20%, 50%, even 100% in one year were common, yet amazingly, some politicians and special interest groups argue for a return to the old system!

See more information on saving on property taxes with the California Homeowners Exemption and save money every year!

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