Published by the American Association of Private Lenders | March 15, 2o22
California AB 1771 will charge an additional 25% capital gains tax on almost EVERY RESIDENTIAL PROPERTY sold within 3 years of purchase.
The additional tax would decline in annual increments until the property has been owned for more than seven years.
Legislators proposed AB 1771, also known as the California Housing Speculation Act, on the misguided notion that soaring prices of California homes are driven by investor-purchasers of residential properties in California. The bill lacks nuance, with the chief issues being:
- There are no carve-outs or exemptions for equity earned through property improvement, and
- Except for a few narrowly-defined cases, the bill even lumps in consumer homeowners.
In its efforts to decrease real estate speculation, the bill will decimate the rehabilitation of sub-standard, derelict, or vacant housing stock: The tax means there will be no little or no return on investment for fix-and-flip professionals making needed renovations. The bill also removes one of the chief draws of homeownership vs. renting — the potential to earn equity — for those not absolutely certain of their ability to stay in their homes for the duration of legislators’ arbitrary timelines, or who must sell due to exigent circumstances.
The proposed timeline and amount of additional capital gains tax is as follows for homes sold within a certain number of years from the initial purchase:
- <3 years: 25%
- 3-4 years: 20%
- 4-5 years: 15%
- 5-6 years: 10%
- 6-7 years: 5%
- >7 years: NONE
Finally, while the bill text says the purpose is to put the resulting tax funds toward affordable housing, only about 30% of the additional taxes are specifically allocated for such efforts. The monies raised will also be distributed to communities based on where the taxpayer resides, not where the “needed affordable housing” property is located.
Read our complete bill analysis
What you can do to help
- Sign our joint real estate investor/lender petition.
- Help us get the word out – share our social posts: LinkedIn Facebook Twitter
- Communicate your opposition to legislators via phone, letter, and email. You may download and customize the sample letters below to tell your personal story of how AB 1771 will affect you and your business.
- Sample real estate investor letter
- Coming soon for download – Sample lender letter
Legislator Contact Information
Bill Author: Christopher M Ward (D), Assembly Member, 78th District
Co-Author: Speaker Pro Tempore Kevin Mullin (D), Assembly Member, 22nd District
Find your California representatives to express your opposition here.
This bill is currently with the Assembly Committee on Revenue and Taxation. Committee members and their contact pages may be found here.
Source: https://aaplonline.com/articles/advocacy/ca-flip-tax/
