Californians might be facing new taxes, again.
Waves were stirred last week when Assemblymember Chris Ward (D-San Diego) introduced the California Speculation Act (AB 1771).
The bill is the Assembly’s latest attempt to curb rising housing costs and bludgeon investor profits. If passed, the Act would add an additional 25% tax on the capital gain from the sale or exchange of residential properties within three years of its initial purchase.
In other words, California lawmakers are trying to disincentivize investor activity in the state’s housing market. Yet, the bill’s language will also affect the traditional homeowner, including the most vulnerable.
An Overview of the California Speculation Act
The California Speculation Act carries the following provisions:
- Homeowners would be taxed up to 25% on capital gain if they sell their home within three years of purchase.
- The tax applies to all “Qualified Taxpayers”.
- Applies to most residential properties with few exemptions.
- First-time homebuyers and affordable housing units are exempted.
- Properties sold within three years are subject to a 25% tax. After three years, the rate declines by 5% each year until seven years have passed.
- Collected taxes would be put towards community investment, with 30% designated for affordable housing.
- If passed with a 2/3 vote in the Assembly, the bill would become law on January 1, 2023.
What’s The Story Behind It?
California’s housing market is notoriously expensive. San Francisco usually charts at number one for the most expensive real estate market in the U.S. State tax rates are also among the highest in the nation.
AB 1771’s intention is to lower home prices by preventing investors from taking advantage of the market with cash offers. According to the bill’s sponsor, Chris Ward, the Act will dissuade institutional investors who buy up homes with cash and flip them at inflated prices soon after.
“We’ve heard of people getting into their first home getting…