The first months of 2023 have been excellent to get rid of a mansion in Los Angeles. A proposed tax to benefit the construction of popular housing served as fuel for dozens of luxurious residences to change owners. The tax, known as the mansion tax, was approved in a referendum last fall and went into effect in April. The tax levies 4% on all sales of residences that exceed five million dollars, which generated some 200,000 dollars destined to attend to the urgent problem of the homeless in the city. The rate is progressive and reaches 5.5% for houses of more than 10 million dollars (550,000 dollars). The tax raised the temperature in one of the hottest US housing markets.
The tax caused a frenzy in Los Angeles, a city where mansions abound. The owners who doubted whether to sell found the perfect excuse in the measure, proposed by urbanists. The local press was filled in March with notes on the tricks used by millionaires to remove their properties from the classifieds. The owner of a luxurious residence in Beverly Crest, in the city of Santa Monica, for example, offered potential buyers to include in the transaction one of the vehicles that appeared in the images of the facade of his mansion, which he put up for sale. for $16.5 million. These were a McLaren, an Aston Martin or a Bentley. Among the celebrities who decided to liquidate their homes to avoid paying this tax are Jim Carrey, Mark Wahlberg, Jennifer Lopez and the television presenter James Corden.
Between January and March, creativity penetrated the real estate market. Various schemes were formulated to avoid the tax, which was intended to add yet another weapon to Los Angeles County’s tools to reverse the condition of some 50,000 homeless people. Some owners opted for discounts only valid in March, others bet on dividing their plots so that the value does not reach five million. A few have gone to law firms to sue the city over a tax they believe is unconstitutional.
But the bubble has burst. “We had an extraordinary March, a lot of high-value properties were sold that month, but the trend now is downward,” Mauricio Umansky, president of The Agency, a boutique real estate agency for millionaires, said recently. In March, at least 126 property transactions over five million dollars were closed. In April, on the other hand, there were only two.
LeBron James’ neighborhood
The sale of this pair of properties, in the Venice and Brentwood areas, the neighborhood where Lakers star LeBron James lives, accumulated $528,000 in taxes for the House LA program (fund to prevent homelessness and affordable housing ). These resources can now be used by the city in prevention programs. The figure, however, is far from what the three urban planners who collected the signatures thought. The initial forecast was to reach 900 million dollars, an amount they calculated looking at market activity between 2021 and 2022. The Los Angeles experiment is the most aggressive of its kind. New York, another city with a sizeable homeless population, has a similar tax. This is 1% for each property with a value greater than one million dollars. These taxes, borne by the sellers, are added to other charges such as property tax, which in Los Angeles County is 0.82%.
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