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Top 3 Must-Know Updates for Homeowners of Properties Valued at Over $5 Million
Published Date : April 4, 2024
Owning a home brings unique considerations, especially for some properties valued over $5 million in California. It is important to stay informed about the latest changes in laws and regulations that may impact your financial decisions. In this article, we will delve into three updates for 2024 that could impact your property. First, let’s discuss the changes to regulations around Accessory Dwelling Units (ADUs).
EMBRACING SEPARATE ADU SALES
In the past, California has imposed limits on selling ADUs separately from the primary dwelling, hindering opportunities for owners, investors, and developers. However, AB 1033 changes these restrictions by authorizing homeowners to independently sell one or more ADUs apart from their primary residence. Local agencies now have the option to adopt local ordinances, allowing the sale of ADUs as separate condominium units, subject to approval from the California Department of Real Estate.1
REMOVING OWNER-OCCUPANCY RESTRICTIONS
Local agencies were restricted from enforcing owner-occupancy requirements on ADUs permitted between January 1, 2020, and January 1, 2025 under the prior ADU regulations. AB 976 extends this prohibition indefinitely, ensuring that local agencies can no longer require owner-occupancy for new or converted ADU projects permitted after January 1, 2025. It is important to note that owner-occupancy requirements still apply to Junior ADUs.
UNDERSTANDING THE NEW CALIFORNIA MANSION TAX
Pivoting from ADUs, the California mansion tax, known as Measure ULA (United to House LA), imposes taxes on property sales above certain thresholds in the County of Los Angeles. If the sale of a property exceeds $5 million, the transaction will be subject to a 4% tax. For sales exceeding $10 million, the tax rate increases to 5.5%.2
The implementation of the mansion tax aims to generate revenue for housing initiatives in Los Angeles County. It is estimated to bring in an average of $56 million, which will be allocated towards addressing the housing affordability crisis in the city.2 This program should be closely monitored as it has the presumed potential to serve as a pilot initiative that might be adopted by other counties or possibly statewide in the future. If you find yourself in the position of selling a property in L.A. above the $5 million threshold, here are some key tips to help you navigate the process:
SEEK PROFESSIONAL ADVICE
Consult with a trusted financial advisor, real estate agent and tax professional who possess in-depth knowledge of local regulations. Their well-informed guidance will equip you with invaluable insights customized to suit the nuances of your individual situation..
BUDGET WISELY
When establishing your selling price and planning your financial goals, take into account the potential tax liability. This will help you estimate your net proceeds more accurately. Speak with your financial advisor about your options surrounding this decision.
TRANSPARENT COMMUNICATION
Clearly communicate with potential buyers about the impact of the mansion tax during negotiations. Openness and transparency can help prevent surprises and facilitate a more streamlined sale process.
EXPLORE ALTERNATIVES
Work closely with your financial advisor and tax professional to explore options that may help reduce the impact of the mansion tax. They can help identify potential exemptions and strategies that could lessen your tax liability.
As a California homeowner with a luxury property valued at over $5 million, it is crucial to stay informed about the California mansion tax and the updated ADU regulations. Understanding these key factors enables you to make informed decisions to protect and help grow your wealth. At Sand Hill, we are here to provide you with the assistance and guidance you need to navigate these complexities and shape a lasting legacy.
Sources:
1 – https://www.ezplans.com/blog/2024/01/05/2024-guide-to-the-new-adu-laws-in-california/
2 – https://themortgagereports.com/108550/california-mansion-tax
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