We pay Special assessments with our property taxes each year. Are those deductible? They are for street improvements, sewer lines, etc

[Hal_Al · Accepted solution]

Generally, no, but sometimes.

"The government lets homeowners deduct the cost of state and local real estate taxes on federal income tax returns. According to the Internal Revenue Service, property taxes are deductible only if they are imposed uniformly on all properties in a jurisdiction and based on the assessed value of a property. Since special assessment taxes only benefit properties in specific areas, they are usually not tax deductible. Special assessment taxes are only deductible when they are paid to fund maintenance or repairs."

 Non deductible "Special assessment taxes that increase the value of a property are added to a property's cost basis. An increased cost basis could potentially save money on capital gains taxes."

References: http://finance.zacks.com/special-assessment-taxes-3234.html & J.K. Lasser's Your Income Tax 2015, page 360. section 16.5

[re2boys]

From IRS Pub 17

Taxes for local benefits.   Deductible real estate taxes generally do not include taxes charged for local benefits and improvements tending to increase the value of your property. These include assessments for streets, sidewalks, water mains, sewer lines, public parking facilities, and similar improvements. You should increase the basis of your property by the amount of the assessment.

  Local benefit taxes are deductible only if they are for maintenance, repair, or interest charges related to those benefits. If only a part of the taxes is for maintenance, repair, or interest, you must be able to show the amount of that part to claim the deduction. If you cannot determine what part of the tax is for maintenance, repair, or interest, none of it is deductible.    Taxes for local benefits may be included in your real estate tax bill. If your taxing authority (or mortgage lender) does not furnish you a copy of your real estate tax bill, ask for it. You should use the rules above to determine if the local benefit tax is deductible. Contact the taxing authority if you need additional information about a specific charge on your real estate tax bill.

Itemized charges for services.    An itemized charge for services assessed against specific property or certain people is not a tax, even if the charge is paid to the taxing authority. For example, you cannot deduct the charge as a real estate tax if it is:

• A unit fee for the delivery of a service (such as a $5 fee charged for every 1,000 gallons of water you use),

• A periodic charge for a residential service (such as a $20 per month or $240 annual fee charged to each homeowner for trash collection), or

• A flat fee charged for a single service provided by your government (such as a $30 charge for mowing your lawn because it was allowed to grow higher than permitted under your local ordinance).

   You must look at your real estate tax bill to determine if any nondeductible itemized charges, such as those listed above, are included in the bill. If your taxing authority (or mortgage lender) does not furnish you a copy of your real estate tax bill, ask for it.

Exception.   Service charges used to maintain or improve services (such as trash collection or police and fire protection) are deductible as real estate taxes if:

• The fees or charges are imposed at a like rate against all property in the taxing jurisdiction,

• The funds collected are not earmarked; instead, they are commingled with general revenue funds, and

• Funds used to maintain or improve services are not limited to or determined by the amount of these fees or charges collected.

[Severnaenc2]

We are required to pay an annual water and sewer facility charge of $580. Can I deduct that cost?

[AamilD]

No, you cannot deduct those costs.

Per IRS Instructions on Topic No.503 Deductible Taxes, "Some taxes and fees you can't deduct on Schedule A include federal income taxes, social security taxes, transfer taxes (or stamp taxes) on the sale of property, homeowner's association fees, estate and inheritance taxes, and service charges for water, sewer, or trash collection."

Based on these instructions, water and sewer facility charges cannot be deducted.

[Opus 17]

---

@Severnaenc2 wrote:

We are required to pay an annual water and sewer facility charge of $580. Can I deduct that cost?

---

Possibly, but it's complicated.

Deductible property taxes are taxes that are assessed equally on all homes in the same city or area, to pay for general municipal services.  Fees for services specific to your property are not deductible, as the other expert stated.

However, this can get complicated, especially in states like California that have a property tax cap, which causes cities to add "fees" for municipal services that don't count as "property taxes" for purposes of the property tax cap.  These fees may still be deductible property taxes in the eyes of the IRS.  You will often read that property taxes must be ad valorem, meaning charged based on the value of each individual property.  While this is true, some flat rate charges may still be deductible property taxes even though they are not ad valorem, as long as they pay for general municipal services that applies to everyone.  ("Mello-Roos" taxes being one example.)

If you pay $580 for the privilege of connecting to water and sewer, and your actual usage is billed separately, and every home in your city pays the same $580, that is a deductible property tax, because it is paying for general municipal services that benefit everyone.   If some homes don't have water and sewer, or if this is based on your home's usage, then it is not a deductible property tax even if it is included on your property tax bill.