The California Franchise Tax Board (FTB) has released a new Web page (http://www.ftb.ca.gov/individuals/Real_Estate_Tax_Deduction/index.shtml) to provide guidance on the real estate tax deduction available to taxpayers who claim an itemized deduction on their personal income tax return for real estate taxes paid during the tax year. The FTB is also advising taxpayers that beginning with the 2012 personal income tax return, taxpayers will be required to report items related to their real estate tax deductions, such as the property parcel number and what amounts can or cannot be deducted. The FTB advises taxpayers to keep a copy of their property tax bill(s) so they will have the requisite information to report on their 2012 return.
California law conforms to federal law regarding real estate tax deductions, and taxpayers should use the same real estate deduction amount on both federal and state tax returns. According to the FTB, the deduction is limited to the amount of real estate tax paid during the year that is based on the taxpayer’s property’s assessed value and that is not for a local benefit that tends to increase the value of the taxpayer’s property. Amounts shown on the property tax bill, including special assessments, special taxes, fees, or charges that are not computed based on a property’s assessed value, may not be deducted, regardless of their purpose.
The FTB guidelines state that deductions may be claimed for state, local, and foreign real estate taxes that are based on the a property’s assessed value (ad-valorem), but may not be claimed for amounts listed on the tax bill that are not based on the assessed value of the taxpayer’s property (non-ad-valorem). Examples of nondeductible amounts include special assessments, special taxes, Mello-Roos or Community Facilities Districts (CFDs), 1915 Assessment District Bonds, parcel taxes, itemized charges for services, transfer fees or stamp taxes, and other fees and charges. Additionally, taxes based on the property’s assessed value are not deductible if the tax is for a local benefit that tends to increase the property’s value and is imposed based on the benefit provided. However, local benefit taxes that tend to increase the value of the property assessed are deductible to the extent that they are for maintenance, repair, or interest charges related to local benefits such as sidewalks, streets, water lines, sewer lines, irrigation, and other similar improvement items. Taxpayers must be able to show the amount that is for maintenance, repair, or interest in order to claim the deduction.
The FTB’s Web page provides links for taxpayers to look up an online version of their property tax bill, view a sample tax bill for the various counties to locate which amounts are generally deductible (ad-valorem) and nondeductible (non-ad-valorem), and to find contact information for the tax collectors in each county.
Understanding the Real Estate Deduction, California Franchise Tax Board, November 15, 2011