Can I deduct a property fee for city sidewalks

[divinemsm]

The City of Denver has recently passed a new Ordinance that will charge all property owners an annual "fee" to fund the construction, repair and maintenance of sidewalks citywide. The amount of this fee is to be based on the linear footage of the property frontage multiplied by a value assigned to the street type of that frontage.  This fee will not go toward improvements to the actual sidewalk adjacent to the property but into a fund dedicated to sidewalks throughout the city.  Because sidewalks are in the public R.O.W.  and this fee will not directly increase the value of the property, can it be deducted from my real estate taxes?

[Mike9241]

you can deduct as real estate taxes the state and local taxes you paid on real estate you own that wasn't used for business, but only if the taxes are assessed uniformly at a like rate on all real property throughout the community, and the proceeds are used for general community or governmental purposes.

i would say based on what you provided the taxes are deductible. 

[Opus 17]

No, this is not a deductible real estate tax.  See the instructions for Schedule A (below).

Deductible property taxes must generally be assessed based on the value of the property (ad valorem), charged at the same rate for all similarly situated properties in the community, and used for general community benefits (roads, police, libraries, etc.).    In some states (such as Mello-Roos taxes in California), a fixed charge can also be considered deductible property tax if it pays for a general community benefit. (For example, to get around the property tax caps in California, communities sometimes split out certain community benefits, like libraries, and charge a flat rate per household.  This is deductible because it pays for a general community benefit, even though it is not ad valorem.)

However, fees for specific services (like trash pickup) and fees for property improvements (like sidewalks) are not deductible property taxes, even if they are included in your property tax bill.  You may need to see an itemized bill to know what is deductible, and not just rely on your 1098 or escrow statement.

Instead of deducting the fee to maintain the sidewalk as a property tax, you may add it to the cost basis of your property (because it's a property improvement), assuming the sidewalk is actually on your property.  (Be aware that in many places, the city property extends past the borders of the street, and may include a strip at the front of what you consider to be your front yard.  If the sidewalk is technically on city property, because your property does not extend all the way to the street, you can't include the cost as a property improvement because it's not your property.)

Don't include the following amounts on line 5b.

• Foreign taxes you paid on real estate.

• Itemized charges for services to specific property or persons (for example, a $20 monthly charge per house for trash collection, a $5 charge for every 1,000 gallons of water consumed, or a flat charge for mowing a lawn that had grown higher than permitted under a local ordinance).

• Charges for improvements that tend to increase the value of your property (for example, an assessment to build a new sidewalk). The cost of a property improvement is added to the basis of the property. However, a charge is deductible if it is used only to maintain an existing public facility in service (for example, a charge to repair an existing sidewalk, and any interest included in that charge).

[Anonymous_]

I agree with @Mike9241; the tax (fee imposed) is deductible based upon Sections 1.164-3 and 1.164-4.

https://www.law.cornell.edu/cfr/text/26/1.164-3

https://www.law.cornell.edu/cfr/text/26/1.164-4

The ad valorem requirement is applicable to personal property taxes while the tax imposed in this instance does not appear to fall within a tax imposed for a local benefit (see links above).

[divinemsm]

Thank you for your reply, Mike9241,

The fee or "service charge" is based on property in the public R.O.W. (the existing sidewalk or frontage) so it is not owned by the real property being charged. 

[divinemsm]

Thank you for your reply, Opus 17,

The charge, or fee is based upon the length of the property side facing a street, so not a fixed charge applied equally to every residence.  It is not a fee for a particular service provided to the property, such as trash.  The fee is not based upon whether there is a sidewalk or not.  It is to fund the construction, repair and mainenance of sidewalks citywide, so it is a general community benefit, and does not directly add value to the privately owned property.

[Opus 17]

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@divinemsm wrote:

Thank you for your reply, Opus 17,

The charge, or fee is based upon the length of the property side facing a street, so not a fixed charge applied equally to every residence.  It is not a fee for a particular service provided to the property, such as trash.  The fee is not based upon whether there is a sidewalk or not.  It is to fund the construction, repair and mainenance of sidewalks citywide, so it is a general community benefit, and does not directly add value to the privately owned property.

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While I generally agree with @Anonymous_ that this is more similar to a community benefit tax, I am still a bit hesitant, for 2 reasons.

First, will this fee be applied to every property, regardless of whether that property has a sidewalk?  Or only to properties with sidewalks?  If every property, then it's probably fine.  It's a tax only they don't want to call it a tax.  If only to properties with sidewalks, then it is a benefit for those properties only, which doesn't pass the IRS regulations.

Second, I'm worried about the formula, that the fee will be calculated "based on the linear footage of the property frontage multiplied by a value assigned to the street type of that frontage."  In other words, it sounds like the fee for a 1-family house on one street will be different from a 1-family house on a different street.

In reading about the California Mello-Roos fees, I found that California disputed that the taxes were deductible since they were not ad valorem, and I read the response from the IRS that the tax doesn't have to be ad valorem as long as every property is treated the same.  I can see there might be an argument for taxing business property different from residential property, but if you have residential property that is zoned the same (urban single unit residential, for example) but they are taxed differently, that might also run afoul of the regulations.  

And in fact, if E-SU property (urban edge, single unit residential) are taxed differently than U-SU property (urban single unit), that might be enough to defeat the deductibility, even if all E-SU property were taxed alike and all U-SU property was taxed alike.

The bottom line idea is that like properties must be treated alike, but I don't know how deep the IRS definition of "like properties" will go.  So I can't endorse either position without knowing more about what is actually meant by "multiplied by a value applied to the street type".  

[Anonymous_]

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@Opus 17 wrote:
First, will this fee be applied to every property, regardless of whether that property has a sidewalk?

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@divinemsm answered that question in a previous post; the fee applies regardless of whether or not there is a sidewalk.

["The fee is not based upon whether there is a sidewalk or not."]

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@Opus 17 wrote:
..........what is actually meant by "multiplied by a value applied to the street type".  

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There are different types of public streets, two of which are arterial and local. Provided the cost per front foot is the same for the same type of street, the properties on that type of street are being treated alike in terms of taxation. The fact that a house on a local road may be charged a lower rate than a house on an arterial road is immaterial for that purpose since those two houses are not alike (in terms of the type of street on which they are located). 

Further, certain houses are probably going to be exempt from the charge since they are not located on public streets, but on private roads (e.g., in HOAs). Again, those houses would be treated alike based on the type of street on which they are situated.