Before I get too far into this article, I want to remind you that I am a real estate professional, not a tax professional. When we work our way through the home buying process, buyers almost always ask about property taxes and Mello-Roos fees, and tax impounds. Those are all a part of the real estate transaction. I am doing this blog post to provide you some important information so that you will remember to hold on to your tax bill and to be ready next tax season to talk to your tax professional to make sure that you don’t find yourself in trouble for accidentally cheating on your taxes. If you need tax advise, please talk to your tax professional or your accountant.
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I would venture a guess that most homeowners have been accidentally cheating on their taxes, and getting away with it for years, but that will come to an end next year.
Yes, starting with 2012, taxpayers will no longer be able to illegally deduct their complete property tax bill from their taxes. It has not been legal to do so, but more often than not, taxpayers usually take the number from the 1098 form they receive from their lender and put that on their Schedule A when reporting the amount that they paid in property taxes.
Unfortunately, that number usually includes amounts for various miscellaneous fees, that are not property taxes, and they are not tax deductible expenses.
I think this is another unintended consequence of Prop 13. Adding non deductible fees to the tax bill because they could not increase the taxes. So, what kind of fees are we talking about? Generally anything that is not based on the property value, generally called ad valorem taxes.
Things like Mello-Roos fees, or lighting and landscape fees, or water and drainage studies, or college district fees, are not taxes, therefore they are not deductible even though they show up on your property tax bill.
These fees are also called Direct Levies. On my tax bill, the total each year is about $4,508 of which only $3,096 is property taxes and $1,412 are direct levy fees. That is not as bad as it will be for some taxpayers. Those who bought new homes in the past few years often have Direct Levies that are higher than their ad valorem taxes. If your house was built in the 1970s, then it may not be much of a big deal to you, but if it was built in 2010, you will be paying a little more in income taxes next year.
According to Franchise Tax Board, beginning with the 2012 tax bill (the one due in April 2013), they will require property owners to break down their property taxes into deductible and non-deductible portions. In fact, here is the link to the info so that you can read it yourself if you don’t believe me.
For some people, this will be a real challenge since they are not in the habit of putting the copy of their tax bill with their tax records. All too often, since the mortgage company is taking care of the taxes, they don’t even know where their copy of the tax bill is located when they sit down to do their taxes. For those of you in Sacramento or Placer Counties, you can go online and get your property tax info, if you know your assessors parcel number. In Sacramento, go online to www.eproptax.saccounty.net and in Placer County, go to www.placer.ca.gov/Departments/Tax/Taxes/TaxBillSearch.aspx.
In either case, taxpayers will need their parcel number in addition to the deductible/non-deductible breakdown for their 2012 state income tax filing. If you need help in finding the information, don’t hesitate to contact your real estate professionals at www.ElkGroveRealEstate.com
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As you might guess, this document is a compilation of information from our own efforts as REALTORS, as well as input from other REALTORS in our Coldwell Banker office. I hope it has been of value to you. Don’t hesitate to email us with any suggestions that will make this document better for you and your fellow home owners!
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