Are you looking to purchase a piece of real estate in California and want to know what kind of taxes you may be responsible for? California is known for its high prices in many areas, but the current real estate tax rate for luxury properties may surprise you.
First, it’s important to understand that California’s real estate taxes are levied in two different ways: Property taxes, which are based on the assessed value of a property; and transfer taxes, which are paid when title of the property changes hands. When it comes to luxury real estate transactions, the transfer tax rate is determined by the purchase price of the property.
At the time of writing, the transfer tax rate for luxury real estate purchases in California is 4% on properties valued between $5 million and $10 million, and 5.5% for properties over $10 million. This tax applies to all types of real estate, including residential homes, commercial properties, and undeveloped land. It is important to keep in mind that there are other fees associated with real estate transactions, such as title insurance, escrow fees, and other closing costs, that will need to be factored into your total purchase price.
California in general is also known as the second most expensive state when it comes to real estate, only being topped by Hawaii. According to the luxury real estate platform “redfin” the median selling price for property in California is just short of a million dollars. With this in mind, the luxury tax rate you can expect to pay will only affect 4 percent of the real estate transactions in Los Angeles, as the other 96 percent of property purchases are likely to be below five million dollars.
Interesting claims come from real estate agents working for the super-rich. “The ‘luxury’ market has changed drastically over the past few years. From Beverly Hills to Bel Air, big money luxury home buyers are looking for new places to call home. But it’s not what most people would consider a luxury house in a prime area”, says real estate agent Scott Tamkin.
When deciding whether or not to make the move to California, take into account the potential taxes you may have to pay for a luxury real estate purchase. Although the transfer tax rate is higher than most other states, those living in California enjoy access to year-round sunshine, world-class shopping and dining, and easy access to some of the greatest entertainment hubs in the world. Ultimately the decision lies in your hands, but now you should have a better understanding of the real estate taxes associated with luxury property purchases in the Golden State.