Newsom and Trump have vowed to crack down on | Real Estate news

In a uncommon second of political alignment last month, Gov. Gavin Newsom and President Trump vowed to crack down on company homebuying. Now, a new invoice goals to make it a actuality.

AB 1611, launched by Assemblymember Matt Haney (D-San Francisco) in January, would eradicate a “tax loophole” that Haney says company landlords and investment companies use to buy up single-family properties across the state.

“It’s shocking to me that by design, our tax system lets large firms take advantage of tax breaks in order to outbid California families when buying homes,” Haney said. “They’re able to use a tax loophole to give themselves an upper hand.”

The so-called loophole takes the shape of a 1031 exchange — a tax-filing strategy that permits real estate house owners to defer capital good points taxes when they promote an investment property, such as a single-family home, as long as they buy a comparable “like-kind” property within 180 days. Essentially, it permits traders to change one investment property with another, avoiding taxes in the method.

The invoice would ban firms that own 50 or more single-family properties from taking benefit of the tax break. It would apply to gross sales accomplished after Jan. 1, 2026.

California has the second-lowest homeownership charge in the nation at 56%, and Haney said firms shouldn’t be shirking real estate taxes in the midst of a housing disaster. The California Department of Finance estimated that during the current fiscal yr, the state misplaced $1.2 billion in income due to like-kind exchanges.

Lenny Goodman, the coverage director for the California Tax Reform Assn., labored with Haney to develop the invoice. He said he has considered like-kind exchanges as a rip-off for years, but it’s an ongoing issue with a highly effective foyer behind it.

“They’re called like-kind exchanges, but they’re not actually like-kind,” he said. “You can exchange an office building for a hotel, or an apartment building for a single-family home.”

He added that company traders aren’t shopping for up high-end neighborhoods; it’s principally working-class or middle-class areas, where the affordability disaster is more acute.

Goodman said the ban would help in two methods. First, it will end result in more tax {dollars} being paid by firms. And second, it will stop permitting firms to dominate bidding wars for properties.

Currently, company house owners can afford to bid more on a home than an particular person, understanding that when they ultimately promote it, they’ll keep away from the capital good points tax by shopping for a different property, making it a more precious asset. If they didn’t have access to that benefit, that benefit can be gone.

He sees it as a modest proposal; a more bold effort can be to eradicate like-kind exchanges altogether. But this is a good place to start, and it still lets mom-and-pop landlords or traders who own less than 50 properties to take benefit of the tax break, he said.

The company homebuying development grew to become a point of interest during the pandemic, when low rates of interest despatched the housing market into a frenzy, and first-time homebuyers competed with traders viewing the home as an asset, not a home. During the second quarter of 2021, 23% of home gross sales in L.A. County went to traders quite than somebody wanting to live there.

But data show that company possession still makes up a a lot smaller share of the general market. Analysis from the California Research Bureau confirmed that 2.8% of single-family properties in the Golden State are owned by firms that own at least 10 properties.

The largest chunk of that seems to be smaller mom-and-pop landlords quite than giant firms. Companies with more than 50 properties own roughly 110,000 properties in California, whereas firms with 10-49 properties, which might be exempt from the ban, own roughly 235,000 properties.

Haney said now is the proper time for the invoice, given the momentum offered by Newsom and Trump last month.

Newsom vowed to take a harder stance on company homebuying in his ultimate state of the State speech, saying that “it’s shameful that we allow private equity firms in Manhattan to become some of the biggest landlords in many of our cities.”

It’s unclear which type the crackdown will take; Newsom said it means more oversight and enforcement, and doubtlessly altering the tax code.

A few weeks prior, Trump announced speedy steps to ban institutional traders from shopping for single-family properties, but no particular actions have been announced.

Haney said it’s also well timed in the aftermath of the Palisades and Eaton fires, since data show that traders are flooding the market for burned-out heaps, changing longtime locals. A latest Redfin report said at least 40% of lot gross sales in fire-damaged areas went to traders in the third quarter of 2025.

“It shows you that this shouldn’t be a partisan issue. Whatever your political leaning, you should want regular families to have access to homeownership,” Haney said. “Maybe this is one of the rare issues where there’s broad agreement across political stripes, and we can actually solve a problem.”

A different invoice addressing institutional traders, AB 1240, took a different strategy. Introduced by Assemblymember Alex Lee, it seemed to ban traders that own at least 1,000 single-family properties from shopping for more properties in order to rent them out.

Nine firms own more than 1,000 single-family properties in California. The largest is Invitation Homes, which owns more than 11,000 properties in the state and has confronted a litany of lawsuits associated to unpermitted renovations, unfair eviction practices and withheld security deposits.

Lee’s invoice handed the state Assembly last yr but stalled after fierce opposition from real estate brokers and the California Apartment Assn. It awaits a Senate committee listening to.