Mello-Roos Not Tax-Deductible

by | Nov 26, 2011 | Mello-Roos, Prop 13, Property Tax Re-Assessment, Tips, Advice & Links | 10 comments

Hat tip to ProfHoff for sending in this update from sfgate.com:

Many California homeowners may be surprised to learn that some charges on their property tax bills are not deductible on their income tax return.

The Franchise Tax Board is on a mission to get California homeowners to follow the law and stop deducting the entire amount of their property tax payment. Increasing compliance would raise money for the state and federal government.

(Reminder: California homeowners must pay the first half of their 2011-12 property tax payment by Dec. 10 to avoid penalties.)

Tax pros say the vast majority of homeowners deduct their entire property tax payment as an itemized deduction on their federal tax return, even though federal law prohibits deducting certain taxes and fees. Taking the full deduction reduces state as well as federal taxes.

To be deductible, a property tax must be a percentage of the home’s assessed value (known as an ad valorem tax). It also must be imposed uniformly throughout the community and benefit the general community or government.

Any tax that is a flat fee per household or an itemized charge for services assessed against specific property or certain people is not deductible. Nondeductible charges might be identified as Mello-Roos or Community Facilities Districts, 1915 assessment district bonds, lighting and landscape, parcel taxes, school or college measures and bonds, water, sewer, flood, police, fire and libraries, the tax board says on its website.

Property tax bills do not break out which charges are and are not deductible. In many cases, it’s hard to even decipher what the charges are.

Nevertheless, the tax board told tax preparers in September that it was going to add three lines to 2011 California income tax returns asking homeowners for their parcel number, the amount of property taxes paid and the nondeductible amount.

After getting many complaints from the tax community, the board decided in mid-November to postpone these changes until 2012 tax returns and in the meantime try to educate homeowners about the issue.

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Commercial Prop 13

by | May 11, 2010 | Prop 13, Property Tax Re-Assessment | 28 comments

From the U-T:

SACRAMENTO, Calif. — Democratic lawmakers are determined to close tax loopholes they say cost state and local governments hundreds of millions of dollars each year, as they search for ways to trim California’s enormous deficit.

A report by the union-funded California Tax Reform Association found that the share of property tax paid on residential property has increased since two-thirds of voters approved California’s landmark Proposition 13 tax law in 1978, while the share paid on commercial property has decreased.

In Contra Costa County, for example, taxes on residential properties now make up 73 percent of property taxes collected, up from 48 percent in 1978.

Democrats and unions say many corporations are using loopholes when they buy and sell properties to avoid having them reassessed and their property taxes go up.

“The system is an incredible mess,” said the association’s executive director, Lenny Goldberg. “People are constantly changing their share of ownerships, figuring out ways to avoid reassessment.”

Republicans strongly oppose efforts to tinker with the system. They see such moves as an effort to undermine Proposition 13, the initiative that capped property tax increases and remains popular with voters.

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