A bill that would massively tax house flippers and speculators who buy and sell a house within three years was moved to the Assembly Committee on Revenue and Taxation earlier this week.
Assembly Bill 1771, authored by Assemblyman Chris Ward (D-San Diego), would impose a 25% tax on all net capital gain from the sale or exchange of homes or properties. While the tax may be reduced if significant time has passed, those qualified taxpayers who buy and sell a house within 3 years would need to pay the tax. All revenue from the tax would go to the Speculation Recapture Community Reinvestment Fund.
The bill, also known as the California Housing Speculation Act, would also take effect immediately as a tax levy for all taxable years beginning in 2023. As AB 1771 would result in a tax change, 2/3rds of each house would need to approve for passage.
Assemblyman Ward wrote the bill to specifically target short-term investors who buy homes and other properties, keep them for some time, then sell them at a profit a short time later. This includes house flippers, who renovate properties to sell back, speculators, who often outbid other buyers in the hopes that home prices rise significantly, and cash-only buyers.
“Speculators are taking gobs of tens of millions of dollars out of our community through the cumulative effect of all these transactions. That’s not fair either because the people that are left struggling are people who get outbid 30 times trying to get into their home,” said Assemblyman Ward this week. “It would be an additional income tax on the profit gain from a sale that occurred within three years of the previous sale. But we’ve also seen this influx of short-term investors trying to get into the market, outbid San Diegans and Californians with all-cash offers, and drive the prices up for everyone. So, if somebody’s trying to go in there, fix up a fixer-upper and then sell it for record profits, that is distorting the market because somebody else could have gone in there, done the same and kept the home.”
A bill that targets housing speculators, house flippers
Ward also cites the California Association of Realtors’ quarterly index, who found that California’s median price for a single-family home increased 17 percent to $814,580 in the third quarter of 2021, while near-record lows of 42 percent of Californians could meet home-buying qualification standards. At the same time, investor-buyers accounted for 51% of all sales in Southern California.
Ward also charges that investor-buyers have depleted the market and increased demand for housing, have caused home prices to go up, and have pushed out many middle-income buyers.
While the bill has yet to receive significant support in the Assembly yet, many investors and those in real estate have come out in opposition to the bill, arguing that many cash buyers are not investors, that many house flippers renovate properties that would have otherwise made them unmarketable, and that local investors would be pushed out for larger investing firms who could easily take the 25% tax if passed, decreasing the housing supply even further.
“It gets rid of mom and pop house flipping companies that renovate for generally smaller profits and allows only the large firms to come in and sit on the properties,” Michelle Corning, a real estate agent in Southern California told the Globe Thursday. “If you really want change, either make it an open market or just ban all companies and people associated with housing investment firms to buy houses.”
“Seriously though, the real solution is just to build more homes and reduce vacation rentals. If you pass a law stopping all vacation rentals in beach-side areas, the market will be flooded with new homes overnight. Not ideal. But a reduction would spur more to be on the market.”
“But it’s not only the number of houses either. Investors get tax write offs from mortgage interest and property taxes. That’s where you can really get investors. Or from depreciation. An added tax is the simple knee-jerk solution. There’s a lot more to go after if you really want to reduce investors from buying properties if you know where to look.”
If passed, AB 771 would come into effect next year.
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