A.B. 1771 is running into major opposition after being unveiled to the San Diego community last week.

SAN DIEGO — The California Housing Speculation Act, or Assembly Bill 1771, is running into major opposition after being unveiled to the San Diego community last week. Though the proposed tax is aimed at curtailing investor activity, opponents say it would affect regular homeowners just the same.

“If a sale happened within three years, on the profit from that sale, there’d be a 25% levy,” said Assemblymember Chris Ward, the bill’s sponsor.

After three years, the statewide tax would still apply but it would reduce by 5% each year thereafter. For example, if you were selling your home within the 4th year after you purchased it, you’d pay a 20% tax on the profit. Within the 5th year, you’d pay a 15% tax. It’s not until after the seven-year mark that you’d be completely free from paying the tax when selling a home. Critics argue that the added tax would cause people to hold onto their homes for longer, creating an even lower supply of available homes for sale.

“It’s really going to put a damper on our critically low inventory that we already have,” said Chris Anderson, board president of the Greater San Diego Association of Realtors, an organization that is opposing A.B. 1771. 

While the proposed tax would allow exemptions for first-time homeowners, it would still apply to homeowners on their second or third purchase looking to upgrade.

“The move-up buyer, they’re taking all the equity that they’ve saved and they’re putting it all forward so that they can afford something a little bit bigger,” said Anderson. “Now they’re married or having children and need a bigger place. Normally it’s about three to five years before they do that next leap, so it would affect all those different categories of people and that whole spectrum.”

People sell their homes on short notice for all kinds of reasons, and sometimes under unfortunate circumstances such as a divorce or a death in the family.

“That money’s going to go to the state just because you had an unfortunate circumstance? I think you’re going to need that money to take care of yourself,” said Anderson.

The proposed tax doesn’t differentiate between an investor property or an owner-occupied one, and without any safeguards in the legislation, regular homeowners could be penalized. Assemblymember Ward says he is open to suggestions.

“We’re examining a number of additional amendments that make sense so that traditional homeowners aren’t penalized,” said Ward. “But we want to be mindful that we don’t create any loopholes for large corporations to continue speculation activity.”

CBS 8 will continue to work for you and monitor this proposed bill as it moves through the state legislature.

WATCH RELATED: New CA bill would impose 25% gain tax on house flippers who sell within 3 years (March 2022).