Measure ULA – The City of Los Angeles “Mansion Tax”

What is Measure ULA?

Measure ULA, or the “Homelessness and Housing Solutions Tax”, effective April 1, 2023, is a supplemental tax to the base documentary transfer tax of .45% in the City of Los Angeles. Measure ULA imposes an additional tax on transfers of real property within the City of Los Angeles of 4% of the consideration or value if the same exceeds $5,150,000 but is less than $10.3 million, or 5.5% if the consideration or value is $10.3 million or greater.[1] These thresholds are adjusted annually to reflect increases in the consumer price index. Unlike the base documentary tax, Measure ULA applies to the entire purchase price including the outstanding balance of any assumed mortgages.

Measure ULA Exemptions

Transfer of Partnership Interest

Transfers of interests in a partnership that owns real property are exempt from transfer tax under both Measure ULA and the California transfer tax statute, provided that the partnership is considered a “continuing partnership” within the meaning of Section 708 of the Internal Revenue Code, and the continuing partnership continues to own the real property.[2]  Thus if Partnership X owns real property in the City of Los Angeles, and one of the partners transfer a 1% partnership interest in Partnership X, such transfer is exempt from all transfer tax, including the supplement tax under Measure ULA, so long as Partnership X continues to own and operate the real property.

Transfer Not Changing Beneficial Ownership

Additionally, California has an exemption for transfers that result solely in a change of the method of holding title without changing the ultimate beneficial ownership of the property[3]. For example, assume A and B each own a 50% tenant in common interest in certain real property and they each contribute their interests in the property to Partnership Y for a 50% partnership interest in Partnership Y. Since A and B each continue to own a 50% beneficial interest in the property, such transfer is exempt from transfer tax under California law. While Measure ULA does not expressly set forth this exemption, it appears to have implicitly adopted all of California’s documentary transfer tax exemptions.[4]

Transfer of Leasehold Interest

The creation of a lease or the transfer of a leasehold interest is not subject to transfer tax if the lease has a remaining term (including renewal options) of less than 35 years.

Other Exemptions

Measure ULA does not apply to certain narrow classes of transfers, including transfers pursuant to a reorganization under the Bankruptcy Code, gift transfers, transfers by reason of death, transfers as a result of or in lieu of foreclosure[5], transfers to the federal government, state government, or any agency instrumentality thereof, or transfers to certain non-profit organizations.

Transfer Tax on TIC Interests

Transfer tax is imposed on “the consideration of value of the interest or property conveyed”.[6] As a result, when a tenant in common interest is conveyed, only the amount paid for that interest (or its value) is subject to the transfer tax. For example, if a husband and wife each own a 50% tenant in common interest in property in the City of Los Angeles, and only the husband sells his tenant in common interest, the transfer tax will apply only to the purchase price for the husband’s 50% tenant in common interest.

In Part 2, we will discuss deal structures to avoid or minimize the supplemental tax under Measure ULA.

For any questions or additional information please contact one of Gorman & Miller’s real estate attorneys at (310) 656-8000.

[1] L.A.M.C. § 21.9.2(b).

[2] Id. § 21.9.8(a).

[3] Cal. Rev & Tax Code §11925(d).

[4] See Id. § 21.9.9; see also Real Property Transfer Tax and Measure ULA FAQ. Los Angeles Office of Finance (stating, in response to Question 10 regarding ULA exemptions, that other exemptions include “[a]ll other transactions which are exempt from the base Real Property Transfer Tax per local, state, or federal laws and regulations). https://finance.lacity.gov/faq/measure-ula.

[5] Cal. Rev & Tax Code §11926. However, transfer tax shall apply to the extent the consideration exceeds the unpaid debt, including accrued interest and cost of foreclosure. Id.

[6] See L.A.M.C. § 21.9.2(b).