Are "special assessments" added to home's cost basis?

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 qualify? Thanks.
Scott S.
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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 http://www.mytaxcollector.com/trSampleSecuredTaxBill.aspx for an example)
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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.
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snipped-for-privacy@yahoo.com wrote:

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.
Scott S.
Scott S. wrote:

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So you say that parcel taxes, like $80 per home, are not deductible?
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On 10/3/11 10:56 AM, snipped-for-privacy@yahoo.com wrote:

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.
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wrote:

can you cite some support for this?
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wrote:

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.
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On 10/3/11 7:44 PM, Pico Rico wrote:

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. See 1.1644."
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 1.1642, 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 regulations thereunder.
(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 definition.
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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 tax form.
http://www.ftb.ca.gov/aboutFTB/newsroom/Schedule_CA_Real_Estate_Tax_Deduction.shtml
[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 allowable deductions."
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.
http://www.californiataxdata.com/A_Free_Resources/fact_sheets.asp

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 thread.
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
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Mark Bole
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So which ones do add to basis? I'm guessing these would be things like new construction, new fire hydrants, new levies, etc -- but not for repairs of such.
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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?
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On 10/4/11 2:52 PM, Mark Bole wrote:

http://www.ftb.ca.gov/aboutFTB/newsroom/Schedule_CA_Real_Estate_Tax_Deduction.shtml
[snip]
The CA FTB today, revealed a new website dedicated to this topic. It is called Understanding The Real Estate Tax Deduction. http://www.ftb.ca.gov/individuals/Real_Estate_Tax_Deduction/index.shtml
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http://www.ftb.ca.gov/aboutFTB/newsroom/Schedule_CA_Real_Estate_Tax_Deduction.shtml
Well, the Calif. FTB has been a BIG help - NOT!
http://www.caltax.org/homepage/041312_franchise_tax_board.html
Franchise Tax Board: Taxpayers Given Wrong Advice on Limits of Deductibility of Real Property Taxes Advice given by the Franchise Tax Board to taxpayers that certain property taxes are not deductible has been undercut by the IRS with an information letter, released this month, that comes to a different conclusion. In effect, the FTB advice was incorrect.
With a new statement by the IRS the deductibility of property taxes, it now is clear that the advice the FTB has been giving may have caused taxpayers to overpay their state income taxes.
On its website, as of April 10, the FTB says: "You cannot deduct any amounts shown on your property tax bill . that are not computed based on the assessed value of your property, regardless of purpose." Under this standard, school parcel property taxes would not be deductible.
The IRS, in Information Letter 2012-0018, states that there is no statutory requirement that a real property tax must be an "ad valorem" based tax to be deductible. The letter specifically states that non-ad-valorem property taxes that are uniform and are for the general public welfare (such as school parcel taxes) are deductible.
California conforms to federal law regarding the property tax deduction, and the IRS advice is controlling. Further, the Internal Revenue Code only limits personal property tax deduction to ad valorem-based taxes. There is no such restriction in the Internal Revenue Code on the deductibility of real property taxes.
CalTax has been telling the FTB repeatedly for the past seven months that there is no ad valorem restriction on the deduction of real property tax, and has urged the agency not to adopt this restrictive view. The agency argued that this is what it thought was the view of the IRS, even though a 2003 IRS chief counsel memorandum stated otherwise.
Since the personal income tax filing deadline is Tuesday, taxpayers do not have much time to correct their returns if they followed the FTB's advice and did not deduct school parcel taxes and eligible Mello-Roos assessments. Amended returns should be filed if the originals already have been filed or cannot be corrected in time.
In an April 13 memo, FTB Executive Officer Selvi Stanislaus said: "Under current law, the deductibility of real property taxes is generally a matter of federal law to which California conforms. As such, the FTB will be waiting to review the revisions to the IRS forms and publications to provide comparable revisions to California tax form instructions. The FTB does not anticipate that these revisions will be made prior to the due date for 2011 tax returns (April 17, 2012). We will remove material from our website that limits the deductibility of real property taxes to taxes imposed on an ad valorem basis. We are also revising our tax form instructions to reflect this update. Once the IRS forms and instructions are revised we will provide revised California forms and instructions that are consistent with the revisions made by the IRS."
April 13, 2012 2012 California Taxpayers Association. All Rights Reserved.
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Say there is a non-ad valorem tax to the local fire department. Would this be considered a local benefit and non-deductible as property taxes? If so, can it be deducted elsewhere?
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On 2011/10/04 14:13, og954 wrote:

[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.
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Mark Bole
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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.
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On 2011/10/06 15:29, Pico Rico wrote:

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?
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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.
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wrote:

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 assessment.
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 knows.
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 bill at <mytaxcollector.com>
At some point the IRS will probably require counties etc to define which items are tax deductible and require that 1098s comply.
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