There has been no change in the law; however, the bank may have changed accountants and they are getting different instructions on how to fill out the forms. MUD taxes potentially cover a lot of items, which may not all be deductible.
Here is what the IRS says,
Most state and local governments charge an annual tax on the value of real property. This is called a real estate tax. You can deduct the tax if it is assessed uniformly at a like rate on all real property throughout the community. The proceeds must be for general community or governmental purposes and not be a payment for a special privilege granted or service rendered to you.
Charges for services. An itemized charge for services to specific property or people isn’t a tax, even if the charge is paid to the taxing authority. You can’t 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 for trash collection), or
• A flat fee charged for a single service provided by your local government (such as a $30 charge for mowing your lawn because it had grown higher than permitted under a local ordinance).
Assessments for local benefits. You can’t deduct amounts you pay for local benefits that tend to increase the value of your property. Local benefits include the construction of streets, sidewalks, or water and sewer systems. You must add these amounts to the basis of your property.
You can, however, deduct assessments (or taxes) for local benefits if they are for maintenance, repair, or interest charges related to those benefits. An example is a charge to repair an existing sidewalk and any interest included in that charge.
If only a part of the assessment is for maintenance, repair, or interest charges, you must be able to show the amount of that part to claim the deduction. If you can’t show what part of the assessment is for maintenance, repair, or interest charges, you can’t deduct any of it.
An assessment for a local benefit may be listed as an item in your real estate tax bill. If so, use the rules in this section to find how much of it, if any, you can deduct.
You are going to identify the purpose of each of the MUD taxes you pay, and determine whether you can list them as additional property taxes in Turbotax, or not. If it pays for an ongoing service (like water, wastewater treatment, garbage collection) it is not deductible. If it pays for construction of a property benefit (like a new sewer system, or new sidewalks, or paving the streets in your development), it is not deductible but can be added to the cost basis of your home, which may reduce your capital gains later. If it pays for maintenance and repair of an improvement, you can deduct it.
You may need to contact the MUD to see if they can tell you what the taxes pay for. If you claim a deduction and can't prove it during audit, you will lose it.
