How Wealthy L.A. Residents Are Dodging the City’s New ‘Mansion Tax’
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Los Angeles has a notorious crisis with homelessness and the city has tried several desperate measures in order to address the problem.
One of those methods has been implementing a tax on sales of expensive homes—the so-called “mansion tax.” It imposes a 4 percent tax on properties listed between $5 million and $10 million; above that latter price, the tax increases to 5.5 percent. But The Washington Post reports that the city’s plan to raise millions to aid the neediest residents of the city has had unintended consequences.
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For one, a lot of people conducted their high-end real estate sales in the months before the tax took effect on April 1. The Los Angeles Times reported that stars like Brad Pitt and Mark Wahlberg were among those who made such deals (both celebrities didn’t give The Post comment on these reports). For other deals, real estate agents even resorted to throwing in free luxury cars in an effort to get deals closed in time.
Another way the law has been circumvented is by listing the home at a price slightly below the threshold of the law. Danielle Revelins, an agent with Compass real estate, told The Post that she intentionally listed a Venice Beach home for $4,999,000 with the new tax in mind.
“That property is worth a little bit more,” she told the paper. “But if we listed it at $5.2, they would have to pay $200,000″ in taxes. Other ways people avoid paying the tax include breaking up properties into lots, or dividing a property between two spouses who are able to sell their shares separately.
The measure’s critics have argued that it is counterproductive because the city is losing out on transfer tax revenue, as sales of expensive properties have fallen since the law was implemented. Additionally, the critics argue that a $5 million home may not be a mansion in Los Angeles these days. “It’s a completely ridiculous tax,” Revelins said.
Peter Dreier, a professor of urban and environmental policy at Occidental College, told The Post that “98 percent of the homeowners in L.A. won’t feel this at all, and the ones who will feel it can afford to pay it.” He also said the luxury car giveaway by agents was “the ultimate in selfishness,” describing it as “giving away a luxury car to avoid a tax that will help people that sleep in their car.”
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