California real estate tax deduction

[appelman]

I was wondering how California preparers on this board were reacting to the FTB's resurgent interest in distinguishing deductible from non-deductible real estate taxes. (I'm speaking of Schedule A deductions; it's obviously not an issue for business or rental.) The FTB seems to take the prima facie position that only the ad valorem part of the bill is deductible, though they admit in the fine print that things might not be that simple. The IRS position seems more nuanced (Pub. 530). For example, Mello-Roos taxes may or may not be deductible, depending on just what they are for. Even with the tax bill in hand, it seems like it would be a major project to analyze every charge.

[Roland Slugg]

Changes on hold for a year

The California FTB recently posted the following statement regarding the issue: "Important update, November 1, 2011: FTB has decided to put this change to the Schedule CA on hold for a year, therefore, we will not be requesting information about the deductible portion of real property tax on the 2011 Schedule CA."

Visitors to this board may read the entire news release by clicking here:

http://www.ftb.ca.gov/aboutFTB/newsroom/Schedule_CA_Real_Estate_Tax_Deduction.shtml

Certain amounts added to real estate tax bills have always been non-deductible ... most notably bond assessments ... and now the CA FTB is asserting that some Mello-Roos fees are non-deductible. I seriously doubt if many California homeowners, nor their tax preparers, will know or be able to determine with certainty whether or not a parcel's M-R fees are deductible.

[Gary2]

We discussed this just over a month ago: http://www.thetaxbook.com/forums/sho...ighlight=mello

[appelman]

I know what the state is threatening to do.

My question is how other CA preparers are thinking of responding. Maybe the answer for the moment is, "Wait and see." Many counties, perhaps most, separate ad valorem taxes from the rest of the stuff. But I'm not convinced that it would be fair to the client to deduct only the ad valorem portion.

[OtisMozzetti]

My question is how other CA preparers are thinking of responding. Maybe the answer for the moment is, "Wait and see." Many counties, perhaps most, separate ad valorem taxes from the rest of the stuff. But I'm not convinced that it would be fair to the client to deduct only the ad valorem portion.

I have talked with other CA preparers about the issue. The best answer I have heard among them is that they will explain to the client that the IRS says that the correct deduction consists of only the ad valorem portion, and that the state has delayed its plans to request detailed information about the property tax parcel on which the tax was paid. Then, they plan to ask the client how much property tax the client paid. If they were to insist that the taxpayer provide them with the ad valorem information and to insist that said number will be all that gets entered as a deduction, that would create really major problems with the clients.

Mello-Roos is a major sideshow smokescreen, which does not apply in the vast majority of situations.

[OtisMozzetti]

Congressman Whatisname

I was wondering how California preparers on this board were reacting to the FTB's resurgent interest in distinguishing deductible from non-deductible real estate taxes. (I'm speaking of Schedule A deductions; it's obviously not an issue for business or rental.) The FTB seems to take the prima facie position that only the ad valorem part of the bill is deductible, though they admit in the fine print that things might not be that simple. The IRS position seems more nuanced (Pub. 530). For example, Mello-Roos taxes may or may not be deductible, depending on just what they are for. Even with the tax bill in hand, it seems like it would be a major project to analyze every charge.

I was minding my own business completing some other work one evening when the phone rang with Congressman Whatisname conducting his telephone town hall. An enrolled agent that has a voice which I recognize asked why a (Schedule A) deduction should not be available for all trips which folks drive across a toll bridge near them. After excitement such as that, I listened to the rest of it, and submitted my suggestion that Congress might with IRS help try to make the property tax issue more understandable to the bulk of all taxpayers. Written answer (or nonanswer if you please) came out from Congressman Whatisname:

"Thank you for participating in my telephone town hall. I appreciate hearing from my constituents.
Our tax system is incredibly complicated. Hundreds of available deductions and credits can make tax return preparation difficult for almost anyone. The IRS publishes a directions book that helps taxpayers correctly fill out a Form 1040. These directions clearly state that local and state taxes paid on real estate are deductible only if the taxes are based on the assessed value of the property. We should aim to have a tax code that is easier to administer but also fair to taxpayers at every level of income."

[WhiteOleander]

Dear Congessman Whathisname,
Thanks so much or your help. How would we ever figure these things out without you?