Transfer tax exemptions for rent-restricted affordable housing projects

Transfer tax

Transfer tax is imposed on the transfer of real property from one person or entity to another. The transfer tax rate is variable, depending on the consideration paid or the fair market value of the property transferred. Certain property transfers are exempt from transfer tax, including transfers of properties that provide and maintain certain rent-restricted affordable housing.

Transfer tax exemptions are codified in Article 12-C of the San Francisco Business and Tax Regulations Code.

Changes to the law

On December 15, 2023 a new local law passed that extended the existing transfer tax exemption for rent restricted affordable housing properties to December 31, 2024, and expanded the exemption to certain eligible affordable housing properties not covered by the original exemption. 

The changes to the law became effective January 15, 2024, and applied retroactively to transfers occurring on or after January 1, 2017. 

Moving forward, eligible properties that qualify will pay a transfer tax rate of no more than $3.75 per $500 (0.75%), exempting properties from paying increased transfer tax rates of up to $30 per $500 (6.0%).

Qualifications

Affordable housing properties that may be eligible for the partial transfer tax exemption include the following:

• Transfers under the Community Opportunity to Purchase Act (COPA)
• Transfers with certain specified recorded restrictions requiring that they be maintained as rent-restricted affordable housing for at least 55 years from the later of the date of the transfer or the date the property became available for residential use (“Restricted Properties”) that either:
  • Were granted the property tax welfare exemption for all residential units on the property; or
  • Were vacant at the time of the transfer.
• Were granted the property tax welfare exemption for at least 90% of all residential units on the property at the time of the transfer; or (New eligibility as of January 2024)
• Were wholly-owned by qualified non-profit organizations prior to the transfer, where the transfers are to persons or entities that intend to hold at least 90% of the residential units on the property so that they would qualify for the property tax welfare exemption specific to rent-restricted affordable housing. But if the property is not granted the welfare exemption for at least 90% of the units within two years of the transfer (or three years if certain requirements are met), the exemption will be revoked and the tax must be repaid to the City, with penalties and interest. (New eligibility as of January 2024)

The new law also changed the restrictions that must be recorded against Restricted Property by requiring only that the restrictions have at least 35 years remaining from the date of transfer as long as the restrictions applied to the property for 55 years from the date the property first became available for residential use.

The changes to the law become effective January 15, 2024, and applied retroactively to transfers occurring on or after January 1, 2017. The law also extends the partial exemption by six and half years through December 31, 2030.