The Ripple Effect of California’s Proposed Billionaire Tax

A wealthy Californian recently agreed to buy a nearly $20 million mansion in Palm Beach, Florida, without ever setting foot inside the property in the city famous for its ultra-upscale estates. Why bother with a house tour when the eight-figure purchase is part of a broader plan to establish Florida residency and eventually sell some of his California real estate?

What prompted the coast-to-coast move is California’s proposed billionaire tax, which voters will decide in a Nov. 3 referendum.

The home buyer isn’t a billionaire—yet. But he expects a substantial financial windfall in the near future and worries California could eventually extend the tax to people with smaller fortunes, according to Florida’s Ivan Chorney of the Ivan & Mike Team at Compass, who brokered the deal.

A West Coaster headed to the Atlantic Ocean raises a question for California’s luxury real estate market: Could a tax aimed at roughly 250 billionaires in the state influence the decisions of a much larger group of wealthy homeowners?

Proposition 40 would impose a one-time 5% tax on California’s billionaires. Unlike an income tax, the levy would be based on taxable net wealth, including stocks, business interests and other financial assets. For example, a billionaire with $2 billion in taxable wealth could face a $100 million bill. Personally owned real estate is generally exempt—unless they own it through an LLC or other entity—but some homeowners might still sell properties to raise cash.

Some luxury brokers predict an exodus to Florida and other lower-tax states, potentially bringing more multimillion-dollar mansions onto the market. Others aren’t convinced that wealthy Californians are ready to abandon their homes, businesses and lives over a tax proposal.

The Golden State’s Golden Residents

California has long attracted wealthy residents, from Hollywood moguls to Silicon Valley billionaires. Some experts predict keeping them could become more complicated if Proposition 40 passes.

Indeed, Aaron Kirman, founder and CEO of Christie’s International Real Estate Southern California, expects some of the state’s richest homeowners to pack their bags.

“If this tax passes, we’ll see a significant exodus of billionaires from California,” Kirman said. “The tax sends the wrong message and creates an environment that feels hostile to the people building businesses here.”

Chorney said the calls from concerned Golden State homeowners began the week the measure qualified for the ballot on June 17.. “Every Californian who decides to leave is a buyer somewhere else,” Chorney said.

Yet there’s a difference between threatening to leave California and leaving an oceanside Malibu retreat behind.

“The literature consistently finds that true mobility responses to wealth taxes and to other taxes on the wealthy are relatively small compared to revenues raised,” said David Gamage, a professor of tax law and policy at the University of Missouri School of Law, who helped craft the proposed measure.

Gamage said wealthy taxpayers sometimes purchase homes in lower-tax states or announce plans to relocate without following through. 

Richard McWhorter, a senior wealth adviser at the California-based SRM Private Wealth, has been discussing the tax with two billionaire clients for months. 

“Neither is planning on leaving California, but there have been weekly conversations with each of them as to the potential impact and how to respond through strategies and legal means,” McWhorter said. Nor does he expect either client to sell a mansion to cover the tax. Both have enough cash, investments and access to credit to pay the government without selling their property.

There’s also the matter of everything a billionaire might be leaving behind if they head East.

“Do people leave California over taxes? Some do,” said David Kassir, a senior wealth advisor at Manna Wealth Management. “But moving is expensive and disruptive, and most of my clients with deep roots don’t uproot their lives over a proposal.”

Multimillion-Dollar Listings

California’s luxury market could feel the effects of the proposed tax even if billionaires don’t rush to put their properties up for sale.

For one thing, the tax could discourage wealthy homeowners from trading up to pricier properties. And in a market where the pool of people who can afford a $20 million estate is already small, losing even a few prospective home buyers could make a difference.

“An owner deciding against upgrading from a $10 million home to a $20 million estate creates no new listing immediately, but that decision still affects demand,” said Emil Hartoonian, managing partner of the Agency’s offices in Calabasas, Sherman Oaks and Studio City.

For sellers in tony enclaves where eight-figure asking prices are hardly unusual, fewer potential home buyers could mean properties sit longer on the market and perhaps even sell for less.

But what about the other side of the equation? Are wealthy Californians already putting more mansions up for sale? Not according to the latest numbers.

Across Beverly Hills, Malibu, Santa Barbara, San Francisco and San Jose, the number of homes listed for $10 million or more fell 8% in September compared with the previous year, from 254 to 234, according to a Realtor.com analysis provided to Mansion Global.

Beverly Hills had 106 listings at that price point, down from 114 a year earlier. Malibu had 96, compared with 97.

Of course, not everyone who can afford a $10 million mansion is a billionaire.

Anthony Smith, senior economist at Realtor.com, pointed out that the tax would affect fewer than 300 Californians. Many people purchasing homes priced at $10 million or more are wealthy, but nowhere near billionaire territory.

A $50 Million Mansion Could Escape the Tax

Owning a $50 million mansion is clearly a sign of extreme wealth. Yet under this proposal, that uber-luxury homestead might not count toward the owner’s taxable fortune.

Proposition 40 generally excludes real estate held personally or through a revocable trust. However, if a billionaire holds the same mansion through a limited liability company (LLC) or partnership, the calculation could be much different.

Wealthy homeowners frequently use LLCs for privacy, liability protection or estate planning, and if Prop 40 passes, the distinction could have costly consequences.

“Two billionaires could own identical properties but face dramatically different tax consequences simply because one holds title personally and the other through an LLC,” said Andrew Kirsh, co-founder of Los Angeles law firm Sklar Kirsh.

For example, an LLC-owned $50 million home wouldn’t automatically trigger a $2.5 million tax bill. The amount would depend on the value of the billionaire’s ownership interest and overall taxable wealth.

So why would a tax on billionaires exclude some of their most expensive possessions?

“Real estate is already taxed by real property taxes, in California and in other U.S. states,” Gamage said.

A one-percenter whose mansion is held in an LLC might wonder whether simply transferring it into a personal name would resolve the problem.

The answer is complicated.

Craig S. Redler, an estate planning and asset protection attorney licensed in California and Illinois, said the proposal contains anti-avoidance provisions that could create hurdles transfers made to escape the tax.

“Because this is structured as a one-time tax with a fixed valuation date rather than an ongoing annual levy, the incentive to restructure is temporary and narrow,” Redler said.

The Billions at Stake

Supporters estimate Proposition 40 would raise approximately $100 billion from roughly 250 Californians, with most of the money going toward healthcare.

If passed Prop 40, would make billionaires “pay their fair share,” said Debru Carthan, vice president of SEIU-UHW, a healthcare workers’ union sponsoring the measure, in a statement.

Carthan said the money would help offset federal cuts threatening medical coverage and services for millions of Californians. Under the proposal, 90% of the proceeds would go toward healthcare, with the rest supporting food assistance and education.

The nonpartisan California Legislative Analyst’s Office projects tens of billions of dollars in revenue over several years. It also estimates the state could lose less than $1 billion annually in future income-tax revenue if some wealthy Californians move or rearrange their finances.

Gov. Gavin Newsom opposes the measure, while the California Democratic Party has endorsed it.

Billionaires considering relocating must also keep a close eye on the calendar.

Proposition 40 generally applies to those who were California residents on Jan. 1, 2026, with their wealth measured as of the end of the year. Moving to Florida after the November election, likely wouldn’t eliminate the tax if the proposition passes.

Billionaires in a Bind

Whether they decide to leave California entirely or just downsize to a less-expensive home, it could still get messy for those trying to maneuver around the potential tax.

Even someone worth billions may not have tens of millions sitting in a bank account. A 5% tax on $1 billion would be $50 million before accounting for any exclusions, and raising that much cash could require some financial maneuvering.

Kassir said the challenge for some wealthy taxpayers would be to raise the money without selling investments or other assets. A second or third mansion that’s used only a few weeks a year might suddenly become a more attractive candidate for sale.

“A home can be exempt from the tax calculation and still become part of the funding decision,” Hartoonian said.

And that creates a peculiar possibility for California’s luxury market: A billionaire could own a $50 million mansion that’s exempt from the tax and still end up selling it to pay the bill.

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