Homeowners in several key markets in the United States may anticipate changes in their property tax bills in the coming year, as a result of both federal and local legislation.
In California, two major changes will impact homeowners in Los Angeles and San Francisco. The mansion tax, approved by voters in November in Los Angeles, introduces an additional one-time transfer tax on the sale of real estate valued at over $5 million. For properties valued between $5 million and $10 million, the transfer tax rate is set at 4%. For properties valued at over $10 million, the rate increases to 5.5%. This tax will come into effect in April and will be a permanent modification to the city’s tax landscape. The implementation of this transfer tax is estimated to generate up to $900 million annually in additional funds for the homeless population in the city.
San Francisco will also see an increase in property taxes to address the city’s housing crisis. Landlords and other property owners of buildings with three or more rental units will face additional tax penalties if the units remain vacant for more than 182 days. Beginning in 2023, the owners will be required to rent out those units or face a 2024 tax penalty of up to $5,000 per unit. This rate will increase to as much as $20,000 per unit in future years, depending on the size of the dwelling. The aim of this tax is to discourage property owners from holding on to valuable real estate when rentals are in such high demand.
In 2023, Salt Lake City will experience a historic 4.9% rise in property taxes. The city has not increased property taxes since 2014. For a home valued at $520,000, the median in the city, homeowners will pay an additional $130 annually.
In Florida, lawmakers are proposing measures to provide relief to homeowners whose property is damaged by natural disasters. If a residential property is rendered uninhabitable for 30 days or more, the bill provides property tax rebates for the portion of the year the property is inoperable. The bill also provides $150 million in affordable housing assistance for residents affected by hurricanes, and $60 million in repair, replacement, or relocation of housing costs, a portion of which is allocated to assist homeowners in paying insurance deductibles.
On a federal level, wealthy property owners throughout the United States will be able to retain more of their assets for their heirs, as taxpayers will see an increase in the estate-tax exclusion. In 2022, the lifetime estate-tax exclusion was $12.06 million, but in 2023, the IRS will raise that rate by nearly $1 million to $12.96 million. Couples can combine their exclusions, enabling them to pass on nearly $26 million, before or after death. It is important to note that this estate-tax exclusion may decrease in coming years, therefore, taxpayers are advised to take advantage of the higher rates at present.