California Assembly Bill 1771, also known as the California Flip Tax Bill, has garnered a lot of attention from home flippers. As the name suggests, AB 1771 would add a 25% capital gains tax on nearly every home that was bought and sold within three years of purchase. If passed, the law would take effect on January 1, 2023.
AB 1771 would apply to almost all investors in California residential properties, including those who purchase homes to fix them up and then flip them for a profit. While the additional tax would decline in annual increments afterward, this could be a game-changer for the flipping industry.
Those classified as a “Qualified Taxpayer” would be subject to the new law. Those exempt include any active duty military personnel or a deceased person when the property was sold or exchanged following their death.
There are some exemptions to be aware of. These include:
Multiple Unit Affordable Housing: This includes properties that have more than one residential unit, deed restrictions requiring 15% or more of the units to be classified as “affordable housing,” and deed restrictions that were recorded within three years of the exchange or sale of the property, which only applies to the first sale.
Subdivided Properties: When a Qualified Taxpayer is the recorded owner of a subdivided property, that split property would be exempt. This is as long as the other portions of the subdivided property have not been sold.
First Primary Residence: If a Qualified Taxpayer’s home is the first property that they have owned, it will be exempt from AB 1771. Additionally, the property must have been used as their primary residence since the initial purchase.
Non-Residential Properties: This includes property that is either not zoned or not suitable for residential use.
Other Affordable Housing: Properties with deed restrictions that require the property to remain designated as “affordable housing” are also exempt.
Properties Exempt from Transfer Taxes: If a property is part of a non-profit organization, for example, and transfer taxes do not apply, that property would be exempt from this tax.
Designated Open Space: Specific areas that have been designated as open space, including beaches, forest lands, military land, parks, wildlife preserves, etc., will also remain exempt.
All tax revenue would benefit the Speculation Recapture Community Reinvestment Fund. The bill has yet to receive significant support in the Assembly; however, it’s worth keeping an eye on as the year presses on.
I’m a local real estate professional with decades of experience in the Pasadena area. I am available to assist you in buying or selling a home, so please get in touch with me if you would like to schedule a time to discuss your needs. Take care!