DEDUCTIBLE PROPERTY TAXES

What taxes on real estate are deductible? Many people will get out their end of year mortgage statement or Form 1098 and look for the “Real Estate Taxes Paid” line on the form and use that amount.  However, depending on where you live this number may contain several non-deductible fees and assessments.  In order to accurately determine the deductible taxes you paid you need the actual tax bill.  The state of California is making an effort to educate property owners about which taxes are deductible in an attempt to reduce the tax gap. In a time of falling revenue many governments are looking for any extra tax revenue they can find.

A deductible real estate tax is based on the assessed value of the property (called “ad valorem”) and charged uniformly against all property in the taxing authority’s jurisdiction. A deductible tax must be imposed by a governmental body which could be state or local. This rules out fees and payments to homeowners associations and many utility districts as well as payments to developers or companies for maintenance of public or private areas.

Common charges on your property tax bill that are not deductible include sewer or storm sewer charges, garbage fees or solid waste charges, water quality charges, park fees and other miscellaneous fees.  Debt service generally is deductible if it is assessed based on the value of the property. Areas where the government’s ability to raise taxes is limited are more likely to have a large amount of additional fees. In California the non-deductible fees can be 5% of the total tax bill.

Personal property taxes follow the same rules.  Where automobile property taxes are levied, only the portion that is based on the value of the car is deductible. Decal fees, license plate fees or parking fees are examples of non-deductible charges.

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