San Francisco’s transfer tax is already one of the highest in the nation. If voters approve Proposition I in the November General Election, transfer taxes will double for property sales valued at or above $10 million.
Real estate investors need to be aware of this potential tax increase in drafting their purchase and sales agreements. With a 50% majority approval, the amended transfer tax becomes effective January 1, 2021.
The real estate transfer tax for buildings and homes sold between $10 million and $25 million would increase to 5.5% from 2.75%. For real property sold for $25 million or more, the tax would jump to 6% from 3%.
Unlike the documentary tax transfer tax authorized by the State of California, San Francisco’s transfer tax does not permit any lien or encumbrances remaining on the property at the time of transfer to reduce the amount of tax that is levied.
It has been estimated that doubling the transfer tax rates will provide San Francisco additional annual tax revenues of up to $150 million. The measure is intended to help the city prepare for a surge of investors wanting to capitalize on properties distressed during the pandemic.
The higher taxes would help fund programs such as mortgage and rent relief for tenants and small property owners suffering financial losses brought about by the coronavirus crisis.
The proposed tax increase is the first of its kind in the United States that would be designated specifically to help COVID-related assistance programs and could serve as a model for other local governments in dealing with the aftermath of the pandemic.
San Francisco recently approved a permanent coronavirus-related eviction moratorium that bars landlords from ever evicting tenants on the grounds of failing to pay rent accrued throughout the pandemic.