County tax as a whole is deductible?

Technical topics regarding tax preparation.
#1
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The following is from the tax payment history of King county of Washington state:

Tax $7,667.75
Surface Water $237.88
Surface Water Management (swm) Bond $2.56
Noxious Weed $5.38
Conservation $11.89
Total billed $7,925.46
Amount paid $7,925.46

Other counties have similar line items in tax bill.

My question is how do we determine what is deductible and what is not, theoretically and practically. Most of clients just provide the mortgage statement where the total amount paid is labelled as "tax". Even we can dig out the tax bill as shown above, how can we tell what charge is based on value of the property and what is not.

I have observed that 99% of the accounts just use whatever number on the mortgage statement even before the jobs act when the tax deduction is limited to 10K, what is yours?

PS: the IRS pub 530 (https://www.irs.gov/pub/irs-pdf/p530.pdf) said the following,

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 special service rendered to you.

...

You must look at your real estate tax bill to decide if any nondeductible itemized charges, such as those listed above, are included in the bill. If your taxing authority (or lender) doesn’t furnish you a copy of your real estate tax bill, ask for it. Contact the taxing authority if you need additional information about a specific charge on your real estate tax bill.
Last edited by puravidatpt on 19-Sep-2021 12:00pm, edited 1 time in total.
Please consider visiting this post where my question at the end has not been answered yet:
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#2
Nilodop  
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They all look like service fees to me, similar to trash collection.
 

#3
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Here in NC, most counties that have additional items indicate whether the line item is ad valorem or not. I have few Schedule A clients and most of them are in the same county as me. So I keep a list of fees etc for real estate and personal property taxes and deduct the appropriate amount from the reported amount.

The counties around here have user-friendly websites so if I am in doubt, it is quick and easy to look up. I will often do that for rental properties, to make sure they were actually paid in the year.
 

#4
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SumwunLost: Thank you for the response! I believe for the Schedule A purpose, only the ad valorem item is deductible, but my observation is 99% of the accountants do not check this but to use the sum provided by the mortgage company, albeit it is less a problem as the tax deduction is limited.

For the rental purpose, I believe all items, ad valorem or not, are deductible, for example, trash collection, as it is a service provided to the tenant and therefore a business expense.
Please consider visiting this post where my question at the end has not been answered yet:
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#5
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Agreed on the rental - all deductible.
 

#6
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I think all those fees are still apportioned to taxpayers based on value and, thus, are deductible.
~Captcook
 

#7
Nilodop  
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Not where I live.
 

#8
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Likewise here in NC. In my county, we have a $20 recycling fee on each real estate unit. We have car taxes as well and the city charges a $30 city vehicle fee in addition to the ad valorem taxes and the flat rate state registration fee. On the Organizer, clients will state that their car taxes were $200 when last year's was only $130 on a depreciating asset.
 

#9
mariaku  
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In CA, because of Prop 13, nothing additional to what was assessed as of 1974(?), other than a tiny inflation %, can be added to the ad valorem portion, so all state and local measures assess taxes based on per-parcel basis. The IRS tried (about 10 years ago, for just one year) to consider those non-deductible, but then officially reversed its position. It was all well documented then, but I don't have cites handy since it has not been relevant in a long while.

If it is a private assessment (to cover the cost of underground utilities update in just your block, or to finance installation of solar panels on just your roof), and the county bill is just a convenient vehicle to collect the payment, then it's, of course, non-deductible. If it benefits all county citizens, not specific to you or your property, then it is deductible
 

#10
Nilodop  
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That special CA rule s one I had not heard of. I'd love to read it if possible.

Rev. Rul. 77-29 and a bunch of Pubs and instructions are to the contrary.
 

#11
sjrcpa  
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Look up Mello-Roos
 

#12
Nilodop  
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Look up Mello-Roos. Thanks, I just did.

From CCA 201310029 :
Section 1.164-4(a) of the Income Tax Regulations explains that to be deductible, a real property tax must be levied for the general public welfare at a like rate against all real property in the taxing authority’s jurisdiction. In general, an amount that is assessed only on specific property benefitted by a local benefit (such as for streets, sidewalks, and like improvements) cannot be deducted as a real property tax.

Revenue Ruling 80-121, 1980-1 C.B. 43, notes that a characteristic common to many real property taxes is that the tax is measured by the value of the real property. However, there is no statutory or regulatory requirement that a real property tax be an ad valorem tax to be deductible for federal income tax purposes. Assessments on real property owners, based other than on the assessed value of the property, may be deductible if they are levied for the general public welfare by a proper taxing authority at a like rate on owners of all properties in the taxing authority’s jurisdiction, and if the assessments are not for local benefits (unless for maintenance, repair, or interest charges).

The fire fee does not qualify as a deductible real property tax under the Code and the regulations. First, the fire fee is not a tax under California or federal law:
**********
Second, the fire fee is not levied at a like rate as § 1.164-4(a) requires. Although neither the Code nor the regulations define “like rate”, we believe that the term requires that the rate must uniformly apply based upon an independent variable, such as property value or parcel or structure size, to be considered similar or “like.” A charge of $150 against each structure no matter how large or small is not levied at a “like“ rate.

Third, the fire fee is not imposed against all real property throughout the taxing authority’s jurisdiction as § 1.164-4(a) requires. First, It is imposed only against real property containing structures, not all real property within the state. Second, it is imposed only within state responsibility areas as designated by the state Board of Forestry and Fire Prevention, not all real property throughout the taxing authority’s jurisdiction. These areas are geographically limited and do not cover the entire state of California or the entirety of the territory over which the appropriate taxing authority within the state has jurisdiction.

Fourth, the fire fee is assessed only against specific property to provide a local benefit.
************
Thus, the fire fee fails the general public welfare requirement of § 1.164-4(a) and it is not a deductible real property tax.

********

Regulatory fees in California are also collected according to a different procedure than are taxes. Ad valorem real property taxes are collected under the provisions of Part 5 of Division 1 of the Revenue and Tax Code, entitled Collection of Taxes. Mello-Roos special taxes are collected under the same procedures. Cal. Gov. Code 53340(3).
*******

The supermajority requirement and this disparate collection treatment for fees in California indicate that the fire fee is an ordinary regulatory fee rather than a tax.


Seems even with Mello-Roos they are sticking to the principle.
 

#13
Joanmcq  
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That has to do with the fire fee some areas are collecting. Mello-Roos is a pretty steep assessment in new subdivisions to pay for sewer, lighting, etc. Infrastructure that needs to be put in.
Mello-Roos is on the property tax statements whereas the fire fees are not (at least as far as I've seen).
 

#14
TrueTax  
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Reg 1.164-4(a) states "The real property taxes deductible are those levied for the general public welfare by the proper taxing authorities at a like rate against all property in the territory over which such authorities have jurisdiction," but does that establish an authoritative restriction on the definition of deductible real property taxes under IRC 164(a)(1) that they must be assessed "at a like rate against all property in the territory over which such authorities have jurisdiction?" This statement is part of the following paragraph which seems to be intended as an interpretation of the IRC 164(c)(1) denial of a tax deduction for local benefit assessments:

So-called taxes for local benefits referred to in paragraph (g) of § 1.164-2, more properly assessments, paid for local benefits such as street, sidewalk, and other like improvements, imposed because of and measured by some benefit inuring directly to the property against which the assessment is levied are not deductible as taxes. A tax is considered assessed against local benefits when the property subject to the tax is limited to property benefited. Special assessments are not deductible, even though an incidental benefit may inure to the public welfare. The real property taxes deductible are those levied for the general public welfare by the proper taxing authorities at a like rate against all property in the territory over which such authorities have jurisdiction. Assessments under the statutes of California relating to irrigation, and of Iowa relating to drainage, and under certain statutes of Tennessee relating to levees, are limited to property benefited, and if the assessments are so limited, the amounts paid thereunder are not deductible as taxes. For treatment of assessments for local benefits as adjustments to the basis of property, see section 1016(a)(1) and the regulations thereunder.


CCA 201310029 that Nilodop quoted above seems to take that position:

Nilodop wrote:Second, the fire fee is not levied at a like rate as § 1.164-4(a) requires. Although neither the Code nor the regulations define “like rate”, we believe that the term requires that the rate must uniformly apply based upon an independent variable, such as property value or parcel or structure size, to be considered similar or “like.” A charge of $150 against each structure no matter how large or small is not levied at a “like“ rate.

Third, the fire fee is not imposed against all real property throughout the taxing authority’s jurisdiction as § 1.164-4(a) requires. First, It is imposed only against real property containing structures, not all real property within the state. Second, it is imposed only within state responsibility areas as designated by the state Board of Forestry and Fire Prevention, not all real property throughout the taxing authority’s jurisdiction. These areas are geographically limited and do not cover the entire state of California or the entirety of the territory over which the appropriate taxing authority within the state has jurisdiction.


But if I'm reading this right, that regulation dates back to 1964, and in 1978 the IRS issued a revenue ruling that does not mention this requirement:

Real and personal property taxes imposed at different rates in West Virginia pursuant to section 11-8-6 of the West Virginia Code are deductible as taxes under section 164(a)(1) and (2) of the Internal Revenue Code of 1954. Although section 164(b)(2)(A) specifically requires that, to be deductible, general sales taxes be imposed at a single rate, there is no comparable requirement with respect to real and personal property taxes.
 

#15
Nilodop  
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... does that establish an authoritative restriction .... Regs. are pretty high on the authority scale.

... 1978 the IRS issued a revenue ruling .... That RR is #78-425, and I'd have appreciated not having to figure that out. The RR pretty clearly explains that a single rate is not the requirement for real estate taxes to be deductible; varying rates for varying types of properties are acceptable and deductible.

There is a difference between a rate that they ... uniformly apply based upon an independent variable, ... (from the CCA) and a flat amount that they charge ... against each structure no matter how large or small ... (same source).

Examples of non-deductible fees (not deductible as taxes, that is) are trash collection, sewer improvements on specific streets, burglar alarm fees and the like.

What facts are you dealing with?
 

#16
TrueTax  
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Sorry about the lack of a citation on the 1978 ruling.

I am dealing with a couple of clients who have charges on their property tax bills for street lighting/landscaping. I am assuming the charges are not for capital improvements or installation of the landscaping and street lighting, but rather for things like the utility costs to run the street lights and payments to landscapers to maintain the landscaping.

In both cases, I believe the taxing authority would be the City as the charges would be approved by the City Council, but they are collected by the County tax collector on the property tax bill with other property taxes. I don't believe they are levied on all parcels located within the City, but only those that are within designated areas that benefit from the street lighting and/or landscaping. In once case, it appears to be a flat amount per parcel, while in another case there are various zones within the City and the rate in each Zone is determined based on the costs related to that zone and is based on an "equivalent dwelling unit" calculation.

So if they have to be levied on all parcels in the taxing authority's jurisdiction, that might rule them out from the start. But if that is negotiable, then perhaps the one based on the equivalent dwelling unit could be argued to be "at like rate."
 


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