In a uncommon second of political alignment final month, Gov. Gavin Newsom and President Trump vowed to crack down on company residence shopping for. Now, a brand new invoice goals to make it a actuality.
Meeting Invoice 1611, launched by Assemblymember Matt Haney (D-San Francisco) in January, would get rid of a “tax loophole” that Haney says company landlords and funding companies use to purchase up single-family properties throughout the state.
“It’s surprising to me that by design, our tax system lets massive companies reap the benefits of tax breaks with the intention to outbid California households when shopping for properties,” Haney stated. “They’re in a position to make use of a tax loophole to offer themselves an higher hand.”
The so-called loophole takes the type of a 1031 trade — a tax-filing technique that enables actual property homeowners to defer capital positive aspects taxes after they promote an funding property, comparable to a single-family residence, so long as they purchase an identical “like-kind” property inside 180 days. Primarily, it permits traders to interchange one funding property with one other, avoiding taxes within the course of.
The invoice would ban firms that personal at the least 50 single-family properties from making the most of the tax break. It might apply to gross sales accomplished after Jan. 1, 2026.
California has the second-lowest homeownership charge within the nation at 56%, and Haney stated companies shouldn’t be shirking actual property taxes within the midst of a housing disaster. The California Division of Finance estimated that through the present fiscal yr, the state misplaced $1.2 billion in income resulting from like-kind exchanges.
Lenny Goldberg, the coverage director for the California Tax Reform Assn., labored with Haney to develop the invoice. He stated he has considered like-kind exchanges as a rip-off for years, nevertheless it’s an ongoing challenge with a robust foyer behind it.
“They’re referred to as like-kind exchanges, however they’re not truly like-kind,” he stated. “You possibly can trade an workplace constructing for a lodge, or an condominium constructing for a single-family residence.”
He added that company traders aren’t shopping for up high-end neighborhoods; it’s largely working-class or middle-class areas, the place the affordability disaster is extra acute.
Goldberg stated the ban would assist in two methods. First, it could lead to extra tax {dollars} being paid by companies. And second, it could cease permitting companies to dominate bidding wars for properties.
At present, company homeowners can afford to bid extra on a house than a person, figuring out that after they finally promote it, they’ll keep away from the capital positive aspects tax by shopping for a special property, making it a extra precious asset. In the event that they didn’t have entry to that profit, that benefit could be gone.
He sees it as a modest proposal; a extra formidable effort could be to get rid of like-kind exchanges altogether. However this can be a good place to start out, and it nonetheless lets mom-and-pop landlords or traders who personal fewer than 50 properties to reap the benefits of the tax break, he stated.
The company residence shopping for pattern turned a focus through the pandemic emergency, when low rates of interest despatched the housing market right into a frenzy, and first-time residence patrons competed with traders viewing the home as an asset, not a house. In the course of the second quarter of 2021, 23% of residence gross sales in L.A. County went to traders fairly than somebody desirous to dwell there.
However information present that company possession nonetheless makes up a a lot smaller share of the general market. Evaluation from the California Analysis Bureau confirmed that 2.8% of single-family properties within the Golden State are owned by firms that personal at the least 10 properties.
The most important chunk of that seems to be smaller mom-and-pop landlords fairly than big companies. Corporations with greater than 50 properties personal roughly 110,000 properties in California, whereas firms with 10 to 49 properties, which might be exempt from the ban, personal roughly 235,000 properties.
Haney stated now could be the proper time for the invoice, given the momentum supplied by Newsom and Trump final month.
Newsom vowed to take a harder stance on company residence shopping for in his last State of the State speech, saying that “it’s shameful that we permit personal fairness companies in Manhattan to turn out to be a few of the largest landlords in lots of our cities.”
It’s unclear which type the crackdown will take; Newsom stated it means extra oversight and enforcement, and doubtlessly altering the tax code.
A couple of weeks prior, Trump introduced speedy steps to ban institutional traders from shopping for single-family properties, however no particular actions have been introduced.
Haney stated it’s additionally well timed within the aftermath of the Palisades and Eaton fires, since information present that traders are flooding the market for burned-out heaps, changing longtime locals. A current Redfin report stated at the least 40% of lot gross sales in fire-damaged areas went to traders within the third quarter of 2025.
“It exhibits you that this shouldn’t be a partisan challenge. No matter your political leaning, it is best to need common households to have entry to homeownership,” Haney stated. “Possibly this is among the uncommon points the place there’s broad settlement throughout political stripes, and we will truly resolve an issue.”
A unique invoice addressing institutional traders, AB 1240, took a special method. Launched by Assemblymember Alex Lee (D-San José), it seemed to ban traders that personal at the least 1,000 single-family properties from shopping for extra properties with the intention to lease them out.
9 firms personal greater than 1,000 single-family properties in California. The biggest is Invitation Properties, which owns greater than 11,000 properties within the state and has confronted a litany of lawsuits associated to unpermitted renovations, unfair eviction practices and withheld safety deposits.
Lee’s invoice handed the state Meeting final yr however stalled after fierce opposition from actual property brokers and the California Residence Assn. It awaits a Senate committee listening to.
