Brad Pitt is among the wealthy Californians offloading property in an apparent effort to save millions of dollars in tax. Photo / Maria Moratti, Getty Images
Brad Pitt is among the wealthy Californians offloading property in an apparent effort to save millions of dollars in tax. Photo / Maria Moratti, Getty Images
As the rich and famous offload their properties to avoid extra charges, Riya Makwana looks at where the money raised will be spent.
Hollywood has long been a stronghold for the Democrats, with millions pouring into the party coffers from California and everyone from Brad Pitt to Robert De Niroendorsing Joe Biden in 2020.
However, a Democrat-led push to tax the rich more, spearheaded by Biden’s White House, has left many showbiz elites scrambling to avoid hefty taxes - including Pitt.
The Ocean’s Eleven actor last month sold his Los Angeles mansion for $39 million (NZ$62m) just days before a new “mansion tax” came into force in the city.
He is one of a number of wealthy Californians offloading property in the city in an apparent effort to save millions of dollars in tax.
”People just wanted to shift their properties,” says George Ouzounian, director at Los Angeles real estate company Agency.
“People were desperate to close their deals.”
Celebrities and other wealthy residents of the city were rushing to beat the April 1 introduction of a new tax on the sale of properties above $5m (NZ$8m).
The levy forces those selling properties priced between $5m and $10 to pay 4 per cent of the sale price in tax, and 5.5pc for homes north of $10m.
It would have meant Pitt paying over $2m in city taxes had his sale gone through just days later.
The tax comes on top of an existing Real Property Transfer levy, which applies to all property transactions.
City residents voted through the so-called mansion tax in November last year. It was put on the ballot by homelessness groups and other campaigners who wanted to use the cash raised to fund affordable housing.
The city-wide law was passed shortly after Democrat Karen Bass was elected mayor of LA, promising to “build a new Los Angeles”.
The push to make the Hollywood elites pay more towards their city was part of a broader effort by Democrats to tax the rich.
President Joe Biden has repeatedly called on America’s richest to pay their “fair share” but many wealthy people are now rushing to sell up instead of pay up. Photo / Patrick Semansky, AP
A centrepiece of Joe Biden’s latest budget is a proposed billionaires tax of 25 per cent. The president has repeatedly called on America’s richest to pay their “fair share”.
In LA, the wealthy have been rushing to sell up rather than pay up ahead of the mansion tax deadline.
Pitt had owned his 622sq m property, said to feature a skate park, tennis court and several pools, since 1994 but put it on the market at the start of the year.
The actor was part of a cavalcade of Hollywood elites to back Biden in 2020, saying the Democrat was “a president for all Americans”.
Be that as it may, he doesn’t seem to support the president’s high tax instincts.
Ouzounian, the agent, says: “We saw a high number of [LA] Lakers players and actors doing this.”
The rush of properties coming to market, and the tax, has depressed values and forced sellers to slash prices to get deals done.
Ouzounian says: “We initially listed a home in Bel-Air for $47.5m, this came down to $36m and was sold at $26m just to sell the property off before the tax was introduced.”
The rush to sell has been so frenzied that agents told The New York Post some sellers were throwing in luxury cars such as Bentleys and Aston Martins in a bid to sweeten the deals.
Ouzounian says: “The quickest deal to close happened over three days. The property was listed for three days at $14.9m and had an all-cash offer for $11.5m from the Middle East - they closed on March 29.”
Actor Mark Wahlberg was among those who sold his mansion at a heavily discounted price.
Wahlberg put his 2833sq m mansion on the market for $87.5m and ended up selling it for $55m, dropping the property price by over a third.
Others selling up include actor Jim Carrey.
After 30 years in his 1180sq m home, Carrey put his property on the market for $29m in February, but did not manage to find a buyer before the deadline.
Jennifer Lopez has also also put her LA home on the market in recent months. Photo / Getty Images
Jennifer Lopez and James Corden have also put their LA homes on the market in recent months.
”The tax is affecting all high net-worth individuals,” said LA luxury property agent Bryce Cooper, director at Compass Real Estate.
“In this market, people are selling at a loss, and even if you do, you have got to pay this tax. It’s catastrophic for some people.”
Agents also grumble that the levy has been packaged as a “billionaire tax”.
Agents highlight that it affects all homeowners with properties worth above $5m - just a fraction of a billion.
Cooper says: “As soon as it was introduced people were slashing prices left, right and centre to sell quickly and avoid paying the tax. High interest rates coupled with this new tax will be a double whammy for a lot of people and will dissuade people from moving to LA.”
Estate agents across the city are calling for the law to be repealed, arguing that development in one of the hottest property markets in the world will slow because of the lower purchasing power.
”As a developer you live and die by the profit margin and you are not going to take on a project if it’s not worth your life,” said Cooper.
The mansion tax is expected to generate an income of around $700m to $800m a year, which will be put towards addressing chronic homelessness in LA.
While it is a worthy cause, there are concerns about just how transparently the money will be spent.
”For a property worth $100m, the levy totals to $5.5m, which is a lot and it would be nice for the seller to see where that money is going,” Cooper added.
In the meantime, many rich Angelenos who didn’t manage to sell before the deadline will have to decide whether to take their homes off the market or push on and take a hit.
What it means for the city longer term remains to be seen. A luxury property agent from prime Los Angeles said the latest tax “might be a push too far”.
