Los Angeles’ controversial “mansion tax,” officially known as Measure ULA, has created substantial confusion for co-owners, buyers of a fractional interest, investors, and parties involved in partition actions. One recurring question is whether the tax applies when only a fractional interest in real property is transferred rather than the entire property.
The answer is: generally, Measure ULA applies based on the value of the interest conveyed—not necessarily the value of the entire property. Thus, it appears that purchasing only a fractional interest in real estate in the City of Los Angeles where that fraction is under the limits does not trigger the mansion tax.
What Is Measure ULA?
Measure ULA imposed an additional real property transfer tax in the City of Los Angeles effective April 1, 2023. Under the Los Angeles Municipal Code (LAMC) Section 21.9.2(b):
“[S]tarting on April 1, 2023, there is hereby imposed a tax known as the “Homelessness and Housing Solutions Tax” on each deed, instrument or writing by which any lands, tenements, or other realty sold within the City of Los Angeles shall be granted, assigned, transferred or otherwise conveyed to, or vested in, the purchaser or purchasers, or any other person or persons, by the person or their direction, when the consideration or value of the interest or property conveyed (including the value of any lien or encumbrance remaining thereon at the time of sale) exceeds:
(1) $5,000,000 but is less than $10,000,000, a tax at the rate of 4% of the consideration or value; or
(2) $10,000,000 or greater, a tax at the rate of 5.5% of the consideration or value.”[1]
These thresholds are adjusted annually. The tax currently applies as follows:
- 4% tax on transfers exceeding approximately $5.3 million
- 5.5% tax on transfers exceeding approximately $10.6 million
The thresholds will increase again in June 2026 to 4% tax on transfers exceeding $5.4 million and 5.5% tax on transfers exceeding $10.9 million.
Unlike ordinary documentary transfer taxes, Measure ULA dramatically increases closing costs on qualifying transactions.
Does the “Mansion Tax” Apply to Fractional Interests?
The mansion tax appear to apply only if the value of the transferred fractional interest exceeds the applicable threshold.
The Real Property Transfer Tax and Measure ULA FAQ explains that Measure ULA applies to the “consideration or value of the real property interest conveyed.” This wording is significant because it focuses on the specific interest being transferred rather than automatically looking to the value of the entire property and is consistent with the text of LAMC § 21.9.2, which likewise focuses on the value of the “interest or property conveyed.”
For example:
- A property is worth $12 million (including the value of any lien or encumbrance)
- One co-owner sells a 25% tenant-in-common interest
- The buyer pays $3 million for that interest
In this scenario, the transferred interest is valued at $3 million, which is below the current Measure ULA threshold. Accordingly, Measure ULA would generally not apply, even though the entire property is worth substantially more than the threshold.
It’s also important to note that Measure ULA calculations can differ from ordinary Base Tax calculations as the Base Tax is “calculated based on net value of the property conveyed (exclusive of the value of any lien or encumbrance remaining thereon at the time of sale)” whereas the ULA tax is “calculated based on gross value (including the value of any lien or encumbrance remaining thereon at the time of sale)”.[2]
Accordingly, mortgage allocations and debt assumptions can materially affect ULA analysis in co-owner buyouts and settlement transactions.
Why This Matters in Partition Actions
Fractional-interest transfers arise frequently in partition matters. Common scenarios include:
- One co-owner buying out another co-owner’s interest
- Transfers between family members
- Settlement agreements resolving co-ownership disputes
- Transfers into or out of LLCs or partnerships
- Pre-sale restructuring before listing the property
The transfer-tax consequences can differ dramatically depending on the structure of the transaction.
For example, if one co-owner purchases another co-owner’s 50% interest in a property worth $8 million, the conveyed interest may only be valued at approximately $4 million. That transfer may avoid Measure ULA entirely even though a later sale of the whole property could trigger the tax.
Substance Over Form Concerns
Parties should be careful not to assume that splitting transactions automatically avoids Measure ULA. The City of Los Angeles has not issued comprehensive regulations addressing every type of fractional-interest transaction. As a result, parties should expect taxing authorities to evaluate transactions based on their practical economic substance rather than solely their formal structure.
The City may challenge transactions that appear artificially structured to evade transfer taxes. For example:
- Multiple coordinated transfers
- Staged transactions
- Transfers through entities
- Straw-party arrangements
Courts and taxing authorities frequently apply a “substance over form” analysis when determining tax liability.
Accordingly, sophisticated transactions involving high-value Los Angeles real estate should be reviewed carefully by qualified counsel and tax professionals.
LLC and Partnership Transfers
Some investors attempt to structure transactions through LLCs or partnerships rather than direct deed transfers.
While certain entity-interest transfers may avoid transfer taxes under specific circumstances, the rules are highly technical and involve overlapping issues concerning:
- Documentary transfer tax
- Measure ULA
- Property tax reassessment
- Change in ownership rules
- Continuing partnership rules
Small details in drafting or timing can substantially affect tax consequences.
Certain exemptions applicable to documentary transfer taxes may also affect Measure ULA analysis, as some transactions exempt from the City’s ordinary real property transfer tax may likewise qualify for exemption from Measure ULA: “The ULA Tax will be not be applicable on documents that convey real property within the City of Los Angeles if the transferee is described under newly added sections 21.9.14 and 21.9.15 of the Los Angeles Municipal Code.”[3]
Partition Sales and Measure ULA
In partition actions, Measure ULA may apply differently depending on the nature of the transfer.
Court-Ordered Sale of Entire Property
If the entire property is sold through a partition referee sale and the sales price exceeds the applicable threshold, Measure ULA will generally apply.
Buyout Between Co-Owners
If one co-owner buys out another co-owner’s fractional interest, the tax analysis usually focuses on the value of the interest conveyed rather than the value of the entire property.
Settlement Transfers
Settlement agreements involving deeds between co-owners can create unique transfer-tax issues depending on the consideration exchanged and the structure of the transaction.
Conclusion
Measure ULA can significantly affect the economics of resolving co-ownership disputes involving Los Angeles real estate. Fortunately, the tax generally applies to the value of the interest conveyed rather than automatically applying based on the value of the entire property.
That distinction may significantly affect how co-owner buyouts, partition settlements, and related transactions are structured. However, poorly structured transactions can trigger unintended tax consequences or invite scrutiny from taxing authorities.
Because Measure ULA remains relatively new, many transactional structures have not yet been extensively litigated or interpreted by courts. Future administrative guidance or judicial decisions could alter how the tax applies to complex co-ownership and entity-transfer transactions.
If you are involved in a co-ownership dispute, buyout, or partition action involving Los Angeles real estate, the experienced partition attorneys at Talkov Law Partition Attorneys can help evaluate the potential impact of Measure ULA and develop a strategy to protect your financial interests.
Talkov Law has handled over 575 partition actions throughout California and has a team of twelve full-time partition attorneys dedicated exclusively to partition law. To discuss your case, call Talkov Law at (877) PARTITION (727-8484) or contact us online for a consultation.
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