How will California’s 25% speculation tax affect real estate investors?

speculation tax

How will California’s 25% speculation tax affect real estate investors?

New taxes and California are two things that investors have come to expect living here, and if the California Speculation Act (AB 1771) is passed, real estate investors in the Golden State may soon have another tax pay.

What is the California Speculation Act? Proposed by assembly member Chris Ward (D) San Diego, the hope is that if approved this tax will curb rising housing costs by adding a 25% tax on the capital gain from the sale of a property, if it’s sold within 3 years after purchase.

How Will The Speculation Tax Work?

Besides affecting real estate investors in California who flip properties, or sell within 3 years, the Speculation tax will affect all property owners across California including people who own single-family homes.

Instead of being able to sell their properties within 3 years of purchase, homeowners and investors across California will have to wait 7 years to sell their homes.

  • The tax will apply to all qualified taxpayers including most residential properties with few exemptions.
  • Properties sold within three years are subject to the 25% tax. After three years, the rate will decline by 5% each year, until seven years have passed.
  • If this bill is passed with a 2/3 vote in the Assembly, it will become law on January 1, 2023.

A Bill That Will Affect Every Homeowner In California

There’s no denying that California has a housing shortage problem that’s been dragging on for years, but is another tax the answer to solving this problem?

Sadly, housing starts are way down from 2004, and 1988 levels, when total units rose above 200,000, compared to 120,000 in 2021.

After years of delays and missed goals, the State of California is not able to meet the demand for housing by several million units.

Forcing investors and homeowners to pay an additional 25% tax on top of the sale of their properties isn’t the solution to solving the housing crisis in California.

The Speculation Act could discourage real estate investment in California and further depress the state’s housing supply because there will be fewer homeowners and investors who want to sell within 7 years, because they don’t want to pay the additional 25% tax on Capital gains.

Contact MW Real Estate Group

At MW Real Estate Group, we specialize in multifamily property management for the Los Angeles area.

To learn more about the services we can offer you, contact us today by calling (213) 927-2117 or click here to connect with us online.

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