Because Joe Manganiello and Sofia Vergara’s house, on the market for around $18 million, is in Beverly Hills, it isn’t subject to the L.A. transfer tax. It’s listed with Santiago Arana of The Agency and Barry Peele of Sotheby’s International Realty.
Courtesy of Ryan Lahiff
In early 2023, L.A.’s luxury real estate market experienced a boom as deals were closed before the April 1 implementation of Los Angeles’ Measure ULA, known as the “mansion tax.” In the first quarter, the number of $5 million-plus homes sold increased by 35 percent, with Brentwood, Pacific Palisades and Hancock Park proving particularly active. Before the tax went into effect, Brad Pitt sold a compound for $33 million, while Mark Wahlberg sold a mega-mansion for $55 million. After April 1, taxes on those properties would have been about $1.8 million and $3 million, respectively.
Measure ULA adds a transfer tax of 4 percent for sales above $5 million and 5.5 percent for deals above $10 million; real estate transactions in the city below those levels pay the already-established transfer tax rate of .56 percent.
“The flurry of activity that happened up until April 1 was pretty phenomenal,” says real estate attorney Loretta Thompson, a partner at Withers. “And then, of course, after that, people started pulling their listings. There’s been a quantifiable pause in anything that’s over $5 million. It chilled the market immediately, which was what everyone expected it would do.”
Luxury real estate agents, who were by and large opposed to Measure ULA, continue to speak out against the tax. Verdant Properties’ John Iglar argues that it is a fundamentally ill-conceived transfer tax, which punishes sellers since they are responsible for reporting and paying the tax.
“In L.A., sellers pay the mansion tax. In New York, buyers pay,” Iglar explains. “A buyer purchasing a $10 million house is wealthy at the time of purchase, so a tax on them is truly a tax on the wealthy. Someone selling a $5 million house may be an elderly lady who has $1 million in equity and a $4 million mortgage, and that $1 million is her life savings. It’s not fair. The buyer of a house is, by definition, wealthy at the time of purchase; the seller may be house rich and cash poor. So, it’s a distorted tax that’s going to hit a lot of normal people.”
This means that potential sellers are much more wary of listing a house. “There has to be a reason why you are selling,” says Michael Nourmand of Nourmand & Associates. “It can’t just be, ‘We wanted a change of pace.’”
Iglar expects the downward trend in sales to continue. “My prediction is that we’re going to see a fairly dead high-end market for the rest of 2023,” he says. According to Chris McKenzie of commercial real estate firm Lee and Associates, the tax has also affected the commercial market tremendously and is expected to continue to do so.
There are some winners. Independent Los Angeles County cities like Beverly Hills and Malibu have become more desirable since the measure does not apply to them. It is also shifting the balance of power in luxury real estate, long a seller’s market. “Buyers are being picky right now,” says Nourmand, adding that some people are willing to wait in hopes that sellers bring down prices on mansions: “They feel they have the upper hand in the high-end market. They don’t feel like they have to rush — they think time is on their side.” James Corden, for instance, listed a Brentwood house in January for $22 million, then dropped it to $18 million before selling it in July for $17.1 million. According to Dirt.com, Corden’s sale is subject to nearly $1 million in taxes under the ULA Measure.
However, many hope the tax will be revamped or rescinded. With two lawsuits already challenging the measure, the City of Los Angeles finance director has been instructed to hold any monies received, rather than use them as planned to create affordable housing options in the city.
Even if the tax stays, Thompson believes the market will adjust, if everyone just takes a breath. “I’m eternally optimistic about Los Angeles real estate,” Thompson says. “People want to be in [places like] Bel Air [and] Holmby Hills.”
A version of this story first appeared in the July 14 issue of The Hollywood Reporter magazine. Click here to subscribe.
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