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Update INDUSTRY
California Democrats Propose New Tax Up To 25 APercent On Homes Sold Within Seven Years Of
Purchase
ssembly Bill 1771, (AB 1771), home.” The bill would have a significant impact on the California Speculation many Santa Clarita homeowners.
Act, authored by California Assemblyman, Christopher M. Ward (Democrat — 78th District) proposes to add a capital gains surcharge of up to 25 percent above the current Federal and
State capital gains.
One of the incentives of the bill is to eliminate real estate speculation in California.
According to the California Association of Realtors, 51 percent of the homes purchased during the third quarter of 2021, were purchased by speculators, further driving up the cost of homes.
The national average is only 19 percent.
The proposed timeline and amount of additional capital gains tax is as follows for homes sold within a certain number of years from the initial purchase:
• <3 years: 25 percent
• 3-4 years: 20 percent
• 4-5 years: 15 percent
• 5-6 years: 10 percent
• 6-7 years: 5 percent
• >7 years: NONE
The bill doesn’t allow for any exemptions for equity earned through property improvement. The bill was created to discourage real estate speculators from profiting, however there are almost no exemptions for consumer homeowners who don’t occupy their
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If passed, the bill will go into effect in January 2023 and impact everyone who buys any residential property in California (including apartment houses, duplexes, single-family homes.) This impacts all purchasers, whether an individual or corporation, unless owner-occupied.
With the current Federal capital gains tax at 20 percent, and the current California Capital Gains tax at up to 13 percent, the combined tax and surcharge could be 58 percent. President Biden has proposed raising the Federal capital gains tax, to 39.6% (and a 3.8 percent surcharge on the wealthy) moving the combined tax to 77.6 percent for the average California taxpayer.
The bill was designed to create more affordable housing, yet only 30 percent of the new revenue would go into affordable housing. There is no plan outlined on how to effectively spend that 30 percent. An additional 10 percent would go to administrative fees. There are no details on what would happen to the other 60 percent, although some of the allocation would go to allocations for school districts and public transportation.
The bill is a proposed tax, so it requires a 2/3 majority in the Assembly and the Senate to pass. But California has a super-majority so the Democrats could pass it despite opposition from all the California Republicans.
The bill was drafted on March 8, 2022. It’s still in its early stages. The bill could contain many unintended consequences.