The California Franchise Tax Board has been making it known that they plan to start enforcing a law that up until now has been mostly ignored regarding what real estate taxes you can deduct on your income tax return. Most people assume that if you itemize your deductions, you can deduct 100% of your tax bill. Bad news--looks like that’s not true!
Apparently, according to the letter of the law, you are only supposed to deduct your “ad valorem” taxes, which are the taxes that are figured as a percentage of your assessed value. These are found on the right side of your tax bill. But you are not supposed to deduct most taxes that are a flat amount per property (there are some exemptions). These are the “Special Taxes and Assessments” you’ll find on the left side of your property tax bill. For some people, this may reduce your deductions by thousands of dollars!
This is not a change to the law, the tax board will just be taking steps in the near future to step up enforcement of it. Look for next year’s California state tax return form to ask you for your parcel number, your total property tax bill, and then the amount of the bill that is deductible. For more info go to: www.ftb.ca.gov and search for “Real Estate Tax Deduction.” They claim they are just following the federal rules, so this could impact both your federal and state deductions when you comply with this rule.
There is a bill pending in the CA legislature that would make Mello-Roos fees tax deductible. With California’s budget crisis, this will be hotly debated as there are millions at stake so there is no guarantee it will pass.
I AM NOT A TAX EXPERT. PLEASE CONSULT A TAX EXPERT FOR SPECIFICS TO YOUR SITUATION. If you have questions on any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty