San Francisco Transfer Tax Poised to Be Slashed

San Francisco leaders are taking aim at one of the city’s priciest deal taxes.

Mayor Daniel Lurie and Supervisor Bilal Mahmood introduced legislation to cut the city’s transfer tax in half on large real estate transactions, the San Francisco Chronicle reported. Lurie and Mahmood’s efforts are a bid to unstick tens of thousands of entitled but stalled housing units.

The proposed legislation, known as the Balanced Update to Incentivize Local Development (BUILD) Act would roll rates back to pre-2020 levels, lowering the tax from 5.75 percent to 2.75 percent on deals of at least $10 million and from 6 percent to 3 percent on transactions over $25 million.

Lurie and Mahmood’s proposal would effectively unwind former Supervisor Dean Preston’s Proposition I, a 2020 ballot measure that doubled transfer taxes on high-dollar sales and passed with 57 percent of the vote. Between 2021 and 2024, the tax generated $324 million. Lurie and Mahmood are able to bypass another ballot fight thanks to a 2024 proposition allowing transfer taxes to be lowered legislatively.

To make up for lost revenue, Lurie, Mahmood and Assessor Joaquin Torres plan to introduce a companion ballot measure eliminating a longstanding tax exemption for foreclosures and deed-in-lieu foreclosures where owners surrender distressed properties to lenders.

Lurie and Mahmood said the changes will encourage housing construction, according to the Chronicle. Lurie’s administration estimates the 50 percent cut could save developers roughly $32,000 per unit on multifamily projects that are sold after construction and leasing, as developers often do. The San Francisco Building & Construction Trades Council and the Chamber of Commerce are in support of the effort. Rudy Gonzalez, secretary-treasurer for the San Francisco Building & Construction Trades Council, said the hope is that the transfer tax reduction would help restart the stalled 34,000 housing units in San Francisco’s pipeline that are part of large multi-phased projects.

Since 2020, San Francisco has had some of the country’s highest transfer tax rates, along with Los Angeles and that city’s controversial Measure ULA transfer tax.

— Chris Malone Méndez