Real Estate and Personal Property Tax in California: Navigating Luxury Tax, Property Tax Appeals, and the LA Mansion Tax

Proposition 13 and California Property Taxes

In 1978, Proposition 13 was passed, allowing California real estate properties to be reassessed to current market value only in instances of a change in ownership or the completion of new construction (called the base year value). Additionally, Proposition 13 generally limited annual increases in the base year value of real property to no more than two percent, except when property changed ownership or underwent new construction. The good news is that longtime property owners, whose assessed values generally have not increased more than two percent per year, tend to have markedly low property taxes. However, new buildings and new owners now have assessed values that approximate current market levels.

Luxury Tax California: Personal Property Tax

In addition to real property taxes, California also imposes a "Luxury Tax" on personal property, which is collected on pricey possessions, such as yachts, airplanes, and expensive jewelry. Unlike real property, personal property is appraised annually, which mostly affects businesses. Business owners must detail the cost of all their supplies, equipment, and fixtures in a 571-L form. Personal property taxes must be paid in each county in which the taxable property is located, and the requirements for this tax vary for each county.

Personal Property Tax Complications

Businesses may need to account for leased equipment when reporting to the county assessor and pay taxes on the property for the ensuing fiscal year when personal property is sold. For businesses located in multiple places, filing a 571-L in each county in which they have property can be complicated. Although the Board of Equalization gives out a handbook to all assessors in California, requirements for filing can vary county to county, and even deadlines for filing taxes can differ by county.

California Property Tax Appeals

When property owners believe their property has been improperly assessed or feel that they are being unfairly taxed, they have the option to appeal the assessment. The first step is to contact the appropriate county assessor's office to request an explanation of how the assessment was determined and inform the assessor of any facts affecting the value of the property. Most disagreements are settled this way; however, if an agreement cannot be reached, an appeal should be considered.

In most counties, an appeal is heard at an administrative hearing before the Board of Equalization. The property owner has the burden of proving that the assessor has improperly valued the property, and the property owner can be represented by a lawyer. Paramount Property Tax Appeal specializes in filing county real estate taxes and 571-Ls throughout California. When needed, they know how to file and effectively win an appeal, representing clients throughout the filing and appeals processes.

The LA Mansion Tax: United to House L.A.

United to House L.A., the latest housing bill to be passed in California, introduces a mansion tax that is predicted to have a significant impact on the market. The ULA measure establishes a 4% tax on home sales $5M+ and a 5.5% tax on sales $10M+. At least 92% of the taxpayers' money will fund affordable housing under the Affordable Housing Program and tenant assistance programs under the Homeless Prevention Program. The Los Angeles city administrative officer estimated that the proposed tax could generate $600 million to $1.1 billion in revenue each year. However, the amount of revenue that the tax would generate is dependent on the number of property transactions that occur within the scope of the tax.

Debate Surrounding the LA Mansion Tax

While supporters of the ULA measure argue that it could help solve L.A.’s housing affordability and homeless crisis, others like broker and TV personality Josh Altman caution that the tax policy would lead to higher home prices and bureaucracy. This could make it more difficult for people to buy homes, which could have a significant impact on California’s real estate market. The ULA measure's impact on the real estate market is already being felt, and according to Altman, it is created a race to the bottom as buyers attempted to close deals before the mansion tax is enacted. He even offered a $1,000,000 bonus for anyone who bought and closed before April 1 on a $28 million listing that he has. The tax policy will hit working and middle-class California families the hardest, not just luxury homeowners.