Are Mello Roos Tax Deductible?
I have recently had a couple of buyers ask are Mello Roos are tax deductible, like property taxes?
The answer is not simple. And since I am NOT a tax professional nor can I give you tax advice, let me provide some information that may help.
If you are not clear on what Mello Roos are, see my previous post on “What are Mello Roos?” Generally if there are Mello Roos fees on a property it will be noted in the MLS. But it’s ALWAYS a good thing to double check when you are going through the due diligence process to make sure if there are or not (just as you want to know what the HOA fees are and what they cover).
Regarding tax deductibility, the answer seems to be yes or no - it depends.
Here is a link to a good summary (Spanish and English) of the issue and an explanation of when they may be deducted and when not.
But as always, check with a tax advisor to get the lowdown. You don’t want to get yourself in trouble with the state department of revenue or the IRS.
on July 19, 2009 on 12:04 pm
Your link to the California State Franchise Tax Board is valid, if not very complete.
Their rather cavalier attitude is that it’s only deductible to the extent that you can prove the Mello-Roos assessment is for maintenance of the original infrastructure or interest on the bonds issued. So, the burden of proof is on you do to the necessary work to find this information out.
As a actual matter, the Mello-Roos assessment can be a huge part of your property tax bill, lasting for twenty years or more after the assessment was originally attached to that property. The Mello-Roos part of your property taxes could be from $25 to $300 per month. And, for the most part this is not deductible as an itemized deduction, on neither State nor Federal tax returns.
Now, as a practical matter; things are much different. Most people (including tax preparers) just take a tax deduction for the sum of both of their tax payments, without taking into consideration what the payments are for. Although not the correct way to figure the deduction, it is certainly easier (and better if a Mello-Roos assessment is involved). And if the taxpayer is audited (unlikely), he can easily prove his payments to the auditor with canceled checks, the 1098 statement, or the year-end mortgage summary. So, unless the auditor asks for a copy of the tax bill (which the taxpayer doesn’t have to supply)(and this would be a very knowledgeable auditor), the mistake wouldn’t be caught. Taxpayer wins.
on July 19, 2009 on 12:06 pm
Your link to the California State Franchise Tax Board is valid, if not very complete.
Their rather cavalier attitude is that it’s only deductible to the extent that you can prove the Mello-Roos assessment is for maintenance of the original infrastructure or interest on the bonds issued. So, the burden of proof is on you do to the necessary work to find this information out.
As a actual matter, the Mello-Roos assessment can be a huge part of your property tax bill, lasting for twenty years or more after the assessment was originally attached to that property. The Mello-Roos part of your property taxes could be from $25 to $300 per month. And, for the most part this is not deductible as an itemized deduction, on neither State nor Federal tax returns.
Now, as a practical matter; things are much different. Most people (including tax preparers) just take a tax deduction for the sum of both of their tax payments, without taking into consideration what the payments are for. Although not the correct way to figure the deduction, it is certainly easier (and better if a Mello-Roos assessment is involved). And if the taxpayer is audited (unlikely), he can easily prove his payments to the auditor with canceled checks, the 1098 statement, or the year-end mortgage summary. So, unless the auditor asks for a copy of the tax bill (which the taxpayer doesn’t have to supply)(and this would be a very knowledgeable auditor), the mistake wouldn’t be caught. Taxpayer wins.