How Measure ULA's Transfer Tax Impacts Estate & Trust Property Sales in Los Angeles

The ULA Tax: A Major Factor for Fiduciary Property Sales

Measure ULA—sometimes called the "mansion tax"—took effect in Los Angeles in April 2023 and has fundamentally changed the economics of selling high-value real estate. For fiduciaries administering trusts and estates with LA properties, understanding ULA is essential for prudent decision-making.

This article explains how ULA works, its impact on fiduciary sales, and strategies for navigating this significant new cost.

How Measure ULA Works

The Tax Rates

ULA imposes a transfer tax on real property sales within the City of Los Angeles:

• 4% transfer tax on sales between $5,300,001 and $10,000,000
• 5.5% transfer tax on sales above $10,000,000

These rates are in addition to existing transfer taxes (approximately 0.45%), making Los Angeles one of the most expensive places in the country to sell commercial real estate.

No Trust or Estate Exemption

Critically, there is no exemption for trust or estate transfers. ULA applies to:

• Sales from revocable living trusts
• Sales from irrevocable trusts
• Probate estate sales
• Conservatorship sales
• Trust-to-beneficiary transfers at fair market value

The only significant exemption is for affordable housing properties meeting specific criteria.

Real Dollar Impact

Consider the tax on a typical Los Angeles apartment building sale:

• $6M sale: $240,000 in ULA tax (4%)
• $8M sale: $320,000 in ULA tax (4%)
• $12M sale: $660,000 in ULA tax (5.5%)
• $15M sale: $825,000 in ULA tax (5.5%)

These are not trivial amounts—they represent a significant reduction in net proceeds available for trust beneficiaries or estate distributions.

Impact on Fiduciary Decision-Making

The Duty of Care Consideration

As a fiduciary, you have a duty to consider all material factors when making investment decisions. ULA creates new considerations:

• Is selling now prudent given the substantial tax cost?
• Would holding for potential ULA repeal be a reasonable strategy?
• How does the tax affect the relative attractiveness of selling vs. other options?

There's no universal answer—each situation requires analysis of the specific trust terms, beneficiary needs, and market conditions.

Timing Strategies

Several timing considerations are relevant:

The Repeal Effort

The Howard Jarvis Taxpayers Association has submitted signatures for a ballot initiative that would repeal ULA at the end of 2028 if passed by California voters in November 2026. This creates a potential timing opportunity:

• If repeal passes: Sales after 2028 would avoid ULA
• If repeal fails: ULA continues indefinitely

However, banking on repeal involves significant risk. The initiative may not pass, and holding a property for 2+ years has costs and risks of its own.

Threshold Planning

Some sellers consider strategies to keep sale prices below ULA thresholds:

• Pricing at $5.3M or below avoids ULA entirely
• Pricing at $10M or below keeps the rate at 4% rather than 5.5%

However, artificially suppressing price to avoid tax raises fiduciary concerns. You have a duty to maximize value for beneficiaries, and deliberately selling below market value to avoid taxes likely breaches that duty.

Market Impact on Values

ULA has affected the Los Angeles real estate market in measurable ways:

• Transaction volume has declined for properties above the threshold
• Some price compression has occurred as buyers factor ULA into their offers
• Negotiation dynamics have shifted as parties dispute who bears the tax burden

For fiduciaries, this means current market values may be lower than they would have been pre-ULA. Your Broker Opinion of Value should reflect current market conditions.

Comparing Pre-ULA and Post-ULA Sale Proceeds

Here's how ULA affects net proceeds on a hypothetical $8 million apartment building sale:

Pre-ULA (Before April 2023)

• Sale Price: $8,000,000
• Existing Transfer Taxes (~0.45%): $36,000
• Commission (5%): $400,000
• Estimated Closing Costs: $15,000
• Net Proceeds: ~$7,549,000

Post-ULA (Current)

• Sale Price: $8,000,000
• ULA Tax (4%): $320,000
• Existing Transfer Taxes (~0.45%): $36,000
• Commission (5%): $400,000
• Estimated Closing Costs: $15,000
• Net Proceeds: ~$7,229,000

Difference: $320,000 less in net proceeds due to ULA alone.

For a trust with multiple beneficiaries, this $320,000 reduction directly affects their distributions.

Analyzing Whether to Sell Now or Wait

Arguments for Selling Now Despite ULA

• Beneficiaries need liquidity and can't wait for potential repeal
• Property is declining in value or requiring significant capital
• Interest rate environment is favorable for buyers, supporting pricing
• Repeal is uncertain—it may not pass, or may be challenged legally
• Holding costs accumulate—property taxes, insurance, maintenance, management
• Market timing risk—values could decline while waiting

Arguments for Waiting

• Repeal effort appears viable with strong signature counts
• Beneficiaries can wait and prefer avoiding the tax
• Property is cash-flow positive with minimal holding risk
• Trust terms favor long-term holding
• Potential step-up in basis at beneficiary death makes timing less critical

Documentation Requirements

Whatever you decide, document your analysis:

• The ULA cost at current valuation
• Potential savings if repeal passes
• Holding costs and risks during the wait period
• Beneficiary input and preferences
• Professional advice obtained
• Rationale for your decision

This protects you from beneficiary challenges regardless of how repeal efforts unfold.

ULA and 1031 Exchanges

ULA creates additional complexity for 1031 exchanges:

Impact on Exchange Equity

ULA reduces the proceeds available for your replacement property:

• On an $8M sale with $320,000 ULA, your exchange equity is $320,000 less
• This may require a larger mortgage on the replacement property
• Or it may limit the replacement property value you can achieve

Exchanging Outside Los Angeles

Some investors are exchanging out of Los Angeles into properties in jurisdictions without similar transfer taxes. This avoids ULA on the relinquished property (you still pay it) but ensures no similar tax on future disposition of the replacement property.

Trust 1031 Considerations

If a trust is considering a 1031 exchange, additional analysis is needed:

• Does the trust need liquidity, or can proceeds be reinvested?
• Will beneficiaries want the replacement property, or would they prefer cash?
• Is exchanging into another LA property (subject to future ULA) prudent?
• Would exchanging outside LA better serve beneficiaries?

Working With Buyers on ULA

Negotiation Dynamics

ULA is formally a seller tax, but market dynamics often result in shared burden:

• Buyers may offer less, factoring ULA into their pricing
• Sellers may need to accept net prices below pre-ULA expectations
• Sophisticated negotiations often result in economic sharing

1031 Exchange Buyers

Many buyers for LA multifamily properties are in 1031 exchanges with firm deadlines. These buyers:

• May be willing to pay premium prices to complete their exchange
• Are motivated to close quickly and with certainty
• Can help fiduciaries achieve better pricing despite ULA

Practical Guidance for Fiduciaries

Step 1: Understand Your Situation

• What is the property's current market value?
• If above $5.3M, calculate the ULA cost
• What are the trust's liquidity needs?
• Can beneficiaries wait for potential repeal?

Step 2: Get Professional Input

• Broker Opinion of Value from a specialist
• Tax analysis from the trust's CPA
• Legal guidance from trust counsel

Step 3: Communicate With Beneficiaries

• Explain ULA and its impact
• Present options (sell now, wait, other strategies)
• Gather their input and preferences
• Document the communication

Step 4: Make a Defensible Decision

• Weigh all factors
• Document your analysis
• Proceed with confidence

Looking Ahead

ULA's future remains uncertain. The repeal effort is proceeding, but outcomes are unpredictable. For fiduciaries, the prudent approach is:

• Understand the current rules and their impact
• Make decisions based on your specific circumstances
• Document your analysis thoroughly
• Stay informed about legislative and ballot developments

Questions about how ULA affects your trust or estate property? Learn more about our fiduciary services or request a consultation.