My California property tax bill (for a single-family residence) is
divided into three parts:
1) assessed value rate
2) land & improvements rate
3) special assessments
The "special assessments" section includes a hefty school district
parcel tax, some water district levies (flood control and creek
safety), and some levies for mosquito/vector control. These are not
ad valorem taxes, and so not deductible, but may these amounts be
added to the home's cost basis?
Pub. 523 says "special assessments for local improvements" get added
to the basis. Do the special assessments listed on my property tax bill
In article ,
Pretty sure that the Pub 523 "Special Assessments" is a lump sum payment
for say a new sewer.
Your special assessments look like maintenance costs for mosquito
control or bond amortization.
My tax bills indicates that most of these assessments are based on my
properties assessed valuation. My tax bill shows a 1-800 number for each
of the assessing agencies. (see
On my tax bill they have 650 numbers. I think you call this number if
you want to get the senior exemption from this tax. But I deduct the
entire property tax bill, including the special assessment taxes
(which includes assessments for schools, etc). They probably have
these special taxes because prop 13 keeps the main property tax low.
These special assessments are not ad valorem -- they're a fixed rate
not based on property value -- so they're certainly not deductible.
But I'd wager that 90% of homeowners make the same mistake. It would
be so simple for the tax bill to make this clear ("Special Assessments
are not deductible"), but the county tax collector apparently feels
that it's not his job to help people in this way.
In order for the amount paid to be deductible as a property tax, it must
be an ad valorem tax (one that is based on the value of the property).
Typically, it is calculated as a percentage or mill rate per thousand of
the assessed value. Any other assessment on the tax bill, such as a
parcel tax of $80 per home, is not deductible. You may add the amount to
your cost basis.
not true. Any other assessment may be deductible as a state or local tax,
though not a PROPERTY tax. Unless it is a local assessment tending to
increase the value of the property assessed. So, a mosquito abatement
charge would be deductible as a local tax. Is it worth not including it on
the Schedule A line for "property taxes" and then including it on another
line on Schedule A? I think not.
Sorry... you're right re ad valorem. I was thinking personal property
taxes. Real property taxes are deductible if they meet this definition:
"(b) Real property taxes. The term ?real property taxes? means taxes
imposed on interests in real property and levied for the general public
welfare, but it does not include taxes assessed against local benefits.
It is in the area of "local benefits" as defined in Reg. 1.164-4 that we
have the issue.
"§ 1.164-4 Taxes for local benefits.
(a) So-called taxes for local benefits referred to in paragraph (g) of
§1.164?2, more properly assessments, paid for local benefits such as
street, sidewalk, and other like improvements, imposed because of and
measured by some benefit inuring directly to the property against which
the assessment is levied are not deductible as taxes. A tax is
considered assessed against local benefits when the property subject to
the tax is limited to property benefited. Special assessments are not
deductible, even though an incidental benefit may inure to the public
welfare. The real property taxes deductible are those levied for the
general public welfare by the proper taxing authorities at a like rate
against all property in the territory over which such authorities have
jurisdiction. Assessments under the statutes of California relating to
irrigation, and of Iowa relating to drainage, and under certain statutes
of Tennessee relating to levees, are limited to property benefited, and
if the assessments are so limited, the amounts paid thereunder are not
deductible as taxes. For treatment of assessments for local benefits as
adjustments to the basis of property, see section 1016(a)(1) and the
(b)(1) Insofar as assessments against local benefits are made for the
purpose of maintenance or repair or for the purpose of meeting interest
charges with respect to such benefits, they are deductible. In such
cases, the burden is on the taxpayer to show the allocation of the
amounts assessed to the different purposes. If the allocation cannot be
made, none of the amount so paid is deductible."
It is these local benefit assessments that a great many taxpayers deduct
on Schedule A because they just take the whole amount of the tax bill
without either actually looking at the details or are not aware of the
This topic may be a little upsetting for many Californians who itemize
and deduct property tax, as well as paid preparers, many of whom will
now have to explain that they have been over-deducting all these years.
Further details below.
That's correct, it's not the county assessor's job to help determine
federal income tax treatment of property taxes and assessments.
California tax authorities (the topic of the OP) will be helping us all
be more accurate this year, by asking for parcel numbers and a breakdown
of deductible vs. non-deductible on Schedule CA(540) of the state income
[above link may need to be cut and pasted into your browser if it wraps
onto another line]
"California differs from most other states in that many California
property tax bills include large special assessments that are not
Excerpt from draft form instructions:
"You must look at your real estate tax bill to decide if any
non?deductible itemized charges are included in your bill. The following
is a partial list of charges for services and assessments that you
cannot include in your allowable real estate tax deduction:
? Itemized charges for services to specific property or person, trash
collection, water, mowing
? Delinquent county utility billings
? Library services
? Landscape and lighting
? Storm water services
? Flood control services
? Emergency services
? County Park Dist.
? City 911 Fund
? Municipal water district services"
Special assessments, like Mello-Roos, I believe are neither deductible
nor do they add to basis. Well over 10% of my California residence
property tax bill is my sewer charge, for example.
Here is more detail on all the various types of special assessments and
taxes on real property found in California, many of which are neither ad
valorem nor basis adjustments.
I believe this is incorrect.
Only state and local *INCOME* taxes are deductible, not just any old
tax. In fact, California SDI (mandatory state disability insurance for
wage earners, like New Jersey's) was only allowed to be deductible after
a court case was won against the IRS, concluding that it was in fact an
income tax. There are no local income taxes in California, so nothing
on the property tax bill is going to be deductible unless it is ad valorem.
Or, they look at the real estate tax paid out of escrow, reported on
Form 1098. In the future, in California, that will no longer be an
adequate source document.
Some counties provide a much more clear split between ad valorem taxes
and other assessments/special taxes than the one posted earlier in this
On my bill, here are the items labeled "Ad Valorem"
1 % COUNTYWIDE TAX
BART [bay area rapid transit]
EAST BAY REG PK BD [parks]
MT DIABLO 2002 BND [school district]
MT DIABLO 2010 BND
COMM COLL 2002 BND [community college]
COMM COLL 2006 BND
And here are the items labeled "Special Taxes and Assessments":
MT D MELLO ROOS
CC WTR LEVY LAND
MOSQUITO & VECTOR
EMERGENCY MED B
CCCSD SEWER CHG
FED STORMWATER A16
EAST BAY TRAILS LLD
> >>> In order for the amount paid to be deductible as a property tax, it must
> >>> be an ad valorem tax (one that is based on the value of the property).
> >>> Typically, it is calculated as a percentage or mill rate per thousand of
> >>> the assessed value. Any other assessment on the tax bill, such as a > >>> parcel
> >>> tax of $80 per home, is not deductible. You may add the amount to your
> >>> cost basis.
> Special assessments, like Mello-Roos, I believe are neither deductible
> nor do they add to basis. Well over 10% of my California residence
> property tax bill is my sewer charge, for example.
So which ones do add to basis? I'm guessing these would be thingslike new construction, new fire hydrants, new levies, etc -- but notfor repairs of such.
So is my school district's parcel tax a basis adjustment? It's a
fixed rate per parcel, not ad valorem. It's used for the operational
costs of the school district, principally teacher salaries. I'm not
sure if this is considered a "local improvement". The quality of the
school district most certainly has a huge affect on property values
in my community.
How about a flood control levy, also not ad valorem? That sounds
like a "local improvement". Is it a basis adjustment?
[trying also to answer other questions about basis adjustments]
No, not deductible anywhere. And while I haven't researched the fine
points of this, I strongly suspect not an addition to basis either, as
with most of the "non ad valorem" items on the bill. For example, just
like the fire dept. charge mentioned above, I'm pretty sure the sewer
charge on my own bill is not an addition the basis of my home, and
certainly not deductible. It's just like my garbage or water bill, a
non-deductible personal expense.
My from-the-hip estimate is that the typical CA taxpayer who itemizes
because they own the home they live in will see a 10-20% reduction in
the amount they have previously over-deducted on Schedule A for real
property taxes. Depending on their tax bracket, county of residence,
and assessed value of home, this could represent an additional $100-200
of federal tax liability, plus some additional for CA, which is why CA
FTB is going after this, after all.
So, if the fire department is funded out of Ad Valorum taxes it is
deductible, but if funded out of a parcel tax it is not deductible? I don't
think that is correct. The fire department funding is not a personal
expense, as would be a sewer or water service charge. What should be non
deductible are: personal services, which also do not add to your basis, and
an assessment directed to something less than a significant community, such
as for the addition of sidewalks or storm drains to your neighborhood where
they did not exist before, and which would add to your basis. I base this
on Mark's post above, citing the regs.
That's the question: would or could a "fire dept" fee ever be an ad
valorem tax? I don't really know what the rules are, maybe they're
buried somewhere in the guts of the language of 1978's Prop. 13? Isn't
that where CA ad valorem taxes were limited, but not so (or not in the
same way) special assessments?
the Ad Valorum tax portion that goes to the county can, as far as I know, be
used any way they want. Looking at property tax bills in front of me from
four different Calif. counties, one does not list fire protection at all.
The others each have a parcel tax, but one so low I think there must be more
money being spent on the fire depts. in those counties.
In article , Mark Bole
Prop 13 and its follow on initiatives defined a methodology of assessing
property for tax purposes and limited the tax rate to 1% of the
The taxes are collected by the county which keeps a substantial portion
and returns about 17% to cities and some amount to the schools. Local
governments also collect revenue from sales taxes, business licenses,
building permits and other fees as well as monies from the state.
Together these make up the general fund. They can then decide (within
statutory limits) what to spend these funds on.
Localities (cities, districts etc) can by referendum collect
additional taxes/fees/levies for specific purposes. These
taxes/fees/levies can be based on the assessment, front footage, parcel,
parcel size or usage (gallons of water).
Where I live street lighting and street sweeping are paid for from the
general fund. In an adjacent community those two items are listed as
separate line items on the county tax bill. My water, sewage and
garbage pick up are billed separately. Are some of the "overhead"
charges associated with these services charged to the general fund - who
My county property tax bill lists 6 items besides the 1% general tax
levy. 4 of those items seem to track the increasing assessed value.
the other 2 items (which incidentally are marked with asterisks - no
footnotes) are fairly constant. At about $7 each they wont make any
difference in my income tax. (You can see a sample of my property tax
At some point the IRS will probably require counties etc to define which
items are tax deductible and require that 1098s comply.
It could backfire. If taxpayers find they have to pay an additional
$300 (combined federal and state) because of disallowed deductions,
they might be less willing to tolerate more parcel taxes in the
future, or may demand spending cuts or a repeal of SB400, etc.