CA real estate taxes -- irate clients

[appelman]

I wonder how the other CA preparers out there are coping with irate clients who have been deducting their real estate taxes for donkey's years, only to be told now that they can only deduct half of them, or sometimes even less. My clients don't exactly blame me, but I can see them thinking, "If only I had a less fastidious preparer, maybe he'd let me take the full deduction." Some have even suggested that since it is the FTB that is making all the fuss, they could take the full deduction for federal and make an adjustment for CA. This seems preposterous at first glance, but it does have a wacky sort of logic to it. Is anyone going that route?

[Y2KEA]

First off my experience is the TP only brings in the latest tax bill showing the December payment of the taxable year & the April payment of the next year. Trying to explain to them that you need the prior billing is futile.

That rant being said:

Who told them they could only deduct half the taxes or less?

The butcher, hairdresser or plumber?

Actual deductible RE taxes on both fed & CA are limted to the assessed value of the the property stated as a percentage of that value.

Junk fees such as flood control, mosquito abatement, sanitation district, street lighting etc. are not deductible on schedule A because they are a set fee. The same amount is paid by all property owners.

The politicians have discovered that this is a way around the 2/3 majority vote required to impose a tax under state law.

Take the trauma/emergency fee charged in LA county. It is a fixed amount regardless of assessed value. So someone with a $250,000 home is paying 4 times as much (on a % basis) as the $1M homeowner based on assessed value.

Wait until FTB demands reporting of APN numbers for 2012 so they can disallow the junk fees. Plus how many of your clients will actually bring both bills?

BTW I have a junk fee charge on my RE tax billing for "Lighting District". It is $7.30. I wouldn't have problem with this if I actually had street lights in my neighborhood.

OK rant off. It has been a long day & I am ready for another beer. 11 days to go. Then I can get my labotomy checked.

[joanmcq]

Any fee based on the value of the home is deductible, so your 4million dollar home does get to deduct more of the fee than the 1 million homeowner.

The direct levies (not based on the value of the home) are not deductible and never have been.

Yeah, I'm getting some irate homeowners. But, oh well. It's been fun researching direct levies online (most counties post the bills online). Also, I've found the direct levies don't often change from year to year, so using the figure from the one bill is usually accurate.

[appelman]

I did!!

Who told them they could only deduct half the taxes or less?

I've had clients who have owned their houses for 30 years or more, and their fixed charges can constitute 2/3 of the tax bill.

[taxea]

If only I had a less fastidious preparer, maybe he'd let me take the full deduction

I don't think fastidious is the right word....unscrupulous might be better

[joanmcq]

In some of the new developments, Mello-Roos charges can bring the charges over a grand or more.

My clients that have owned their homes over 30 years don't tend to be itemizing anymore: two spouses over 65 and even tithing won't put them over the standard deduction!

[appelman]

Imho

The CA FTB will regret having stirred up this can of worms. The groundswell of ill will is going to dwarf the meager increase in taxes they will realize. It should not have been their fight to begin with. The IRS sets the rules, and if they are lenient in enforcing them, so be it. It is not the FTB's job to be holier than the pope. They have done something very similar with their HofH audits, which have caused immeasurable misery to low-income taxpayers who have trouble understanding and coping with the notices they receive.

[FEDUKE404]

What I THINK I can deduct

To a lesser extent (compared to CA standards) this problem has been around locally for years.

Deductible property taxes can only be of the ad valorem type. Creative state and local agencies have made end runs around "taxes" by adding such fees that should perhaps be covered by taxes. But they're not. (Oh yes: "We did NOT raise your taxes last year!" can be shouted out.) My favorite local one is a "water runoff fee," accompanied by the ever-present recycle fees, vehicle registration fee, and likely soon a fee administration fee.

Where the problem arises is a "what the heck" preparer who asks how much the guy paid, and then writes it all off. The next preparer, who does it properly, invokes the ire of the client by not using all of the "valid" deductions.

And then a more realistic issue is where "taxes" are shown on an escrow account form and the preparer again takes the path of least resistance.

My standard answer: You need to provide me with the actual property and/or vehicle tax bill, regardless of what your "proof of payment" might say.

The decent clients understand. The others....well, they can just visit other preparers.

FE