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Many Homes Purchased After Jan. 1, 2023 Will Be Impacted

California Democrats Propose New Tax Up To 25 Percent On Homes Sold Within Seven Years Of Purchase

A bill being considered by the California legislature will propose a capital gains additional surcharge tax of up to 25 percent on all homes purchased and then sold within the state during the initial seven years of ownership.

Assembly Bill 1771, (AB 1771), the California Speculation 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.

Assemblymember Ward Defends The Bill

“Many Californians are trying to get into the market as first-time home buyers,” Assemblyman Ward told KHTS. “With so many investors making cash-only offers it has caused prices to jump 25 percent-26 percent, making a purchase out of reach for new homeowners. We amended our bill so all owner-occupied homes are exempt.”

However, many opposed to the bill feel it will cause fewer homes to be on the market, causing prices to rise even further.

They also say investors will simply hold onto their purchase for seven years, causing rental prices to continue to increase.

Wilk Challenges Ward

Our Santa Clarita State Senator and Senate Republican Leader Scott Wilk, R-Santa Clarita, disagrees with Ward.

“If houses don’t move, people don’t move. For a state with an affordable housing crisis, this proposal makes zero sense because raising the price of a home, or the cost of selling it, only keeps people out of the housing market. Sadly, higher taxes and fees are usually the default solution for Democrats in Sacramento, which is a reason we are in this housing pickle in the first place.”

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

Valladares Agrees With Wilk

“At a time when the state is enjoying a massive budget surplus it is ridiculous and irresponsible to consider adding more taxes onto homeowners,” shared Santa Clarita Assemblymember Suzette Valladares R-Santa Clarita, 38th District. “We need to focus on reducing the out-of-control cost of living in California and addressing the pressing issues facing our state — like homelessness and public safety. It will price out hardworking California residents from ever owning a home. I’m focused on advancing positive policies that increase homeownership for first-time buyers and reduce our state’s out-of-control cost of living.”

The California Association Of Realtors Oppose AB-1771

Long-time realtor, Nancy Starcyzk also sits on the executive board of the Southland Regional Association of Realtors. “C.A.R. (California Association of Realtors) strongly opposes AB 1771 (Ward) which would unfairly penalize property owners. AB 1771 also does nothing to ensure that first-time or other home buyers are guaranteed access to homes, nor does it create more housing opportunities. Rather, the bill will cause unintended consequences for the market by reducing the number of homes available for sale — further depressing California’s ownership housing crisis supply.

In a time of record surplus, the state should not punish property owners simply for deciding to move due to unforeseen life events. C.A.R. strongly opposes this bill as it drives yet another wedge into bridging the wealth gap by reducing the opportunities for wealth creation and housing security.”

Realtor Phil Nordella Envisions Other Challenges With AB-1771

Another top veteran Santa Clarita realtor is Phil Nordella of Phil Nordella & Associates.

“AB 1771 is absurd as it’s written. I understand the idea behind it because hundreds of millions of dollars are being poured into institutional (spec) buyers, that have taken up a good percentage of purchases. I challenge the 51 percent that CAR attests too though. However, the California Housing Speculation Act should only address non-owner-occupied, corporate buyers. Why should mom and pop be taxed on a sale if they choose to sell within any amount of time?

iBuyers like Opendoor, Offerpad, Redfin and until recently Zillow among others have been spending millions on advertising that encourages sellers to take a lot less for their homes to avoid “huge fees and a major headache”. They buy and then immediately put the home back on the market for more money and the average profit for them is over $61,000 each. Tax that and leave mom and pop alone!!! As written, this has no chance of going through!!!

I’m going to do a deep dive on AB 1771 on my next radio show Real Estate and Other Stuff which airs on Friday April 8 at 10am on KHTS 1220AM or 98.1FM or on Facebook Live.”

More AB-1771 Details

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 home.” The bill would have a significant impact on many Santa Clarita homeowners.

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 money would filter back to each municipality who had the property taxed within their jurisdiction,” shared Assemblymember Ward. “The State would retain a 10 percent administrative fee.”

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.