Rich on the run in Los Angeles: The tricks to avoid a tax on their mansions that benefits the homeless

The first months of 2023 have been unbeatable to get rid of a mansion in Los Angeles. A tax proposed to benefit the construction of popular housing served as fuel for dozens of luxurious residences to change ownership. The tax, known as the mansion tax, was approved in a referendum last fall and went into effect in April. The rate levies 4% on all sales of residences that exceed five million dollars, which generated about $ 200,000 to address the urgent problem of homelessness in the city. The rate is progressive and reaches 5.5% for homes over $10 million ($550,000). The tax raised the temperature in one of America's hottest housing markets.

The tax caused a frenzy in Los Angeles, a city where mansions abound. Homeowners who were hesitant to sell found the perfect excuse in the measure, proposed by urban planners. The local press was filled during March with notes of the tricks to which the millionaires resorted to get their properties out of 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 dollars. 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 television host 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 one more weapon to the tools that Los Angeles County has to reverse the condition of some 50,000 homeless people. Some owners opted for discounts only valid in March, others opted to divide their plots so that the value did not reach five million. A few turned 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 in that month, but the trend is now downward," Mauricio Umansky, president of The Agency, a boutique real estate agency for millionaires, said recently. In March, at least 126 property transactions above five million dollars were closed. In April, however, there were only two.

LeBron James' neighborhood

The sale of this pair of properties, in the areas of Venice and Brentwood, the neighborhood where Lakers star LeBron James lives, accumulated $ 528,000 in taxes for the House LA program (fund to avoid 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 based on market activity between 2021 and 2022. The Los Angeles experiment is the most aggressive of its kind. New York, another city that has a sizable homeless population, has a similar tax. This is 1% for each property with a value greater than one million dollars. These taxes, assumed by the sellers, are added to other charges such as property tax, which in Los Angeles County is 0.82%.

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