Mello-Roos taxes

[15Gornzz51]

Generally, you cannot deduct Mello-Roos taxes if they are assessed to fund local benefits and improvements that increase the value of the property.

However, you can deduct them if they are for maintenance or repair. Some examples of local benefits include sidewalks, streets, sewer lines, water mains, and other similar improvements. To deduct these local benefit taxes, you must be able to show that they are for maintenance or repair.

Question: In your experience, what document or information can the taxpayer provide to the tax preparer to prove that the Mello-Roos taxes were for maintenance/repair? The county tax bill most likely will not provide that information. Does the taxpayer need to provide a statement from the county on what the taxes were for?

[Rapid Robert]

"Question: In your experience, what document or information can the taxpayer provide to the tax preparer to prove that the Mello-Roos taxes were for maintenance/repair?"

Answer: none. In fact, almost all CA taxpayers who itemize deduct the full amount of property taxes paid (less any late payment penalties) regardless of what they were for, even for things like sewer charges.

Why is this? Because neither the IRS nor FTB ever questions it. Often, the property tax amount is simply provided to the preparer directly by the taxpayer (it will always be just a little more than the previous year's amount for the same property), or it is provided via Form 1098 Box 10.

From Spidell (CA tax research and education publisher):

"The FTB will not require taxpayers to enter parcel numbers (and nondeductible amounts) for property tax claimed on Schedule A on 2012 California tax returns. This decision is in response to the Information Letter released by the IRS stating that there is no statutory requirement that a real property tax be an ad valorem tax to be deductible. (IRS Information Letter 2012-0018 (March 30, 2012)) This was an ongoing saga from the time the FTB announced they would required additional information for property tax deductions in September 2011, until they backed down from that position in February 2012.
[...]
The difficult issue is determining which part is deductible. Even when a property tax bill lists the items that comprise the tax, it is impossible to get a breakdown from the county or to find someone at the Mello-Roos district office who will provide an annual breakdown of how the Mello-Roos payment or other assessment was spent.

In a Government Accountability Office (GAO) report, government officials tried to get detailed information from different local jurisdictions including Alameda County and Oakland. The report concluded that taxpayers would have a great deal of difficulty determining what was deductible, with more than one county official telling the GAO that the information requested was simply not available. (GAO Report to the Joint Committee on Taxation (May 2009))
[...]
The report fails to fully acknowledge the untenable position that lack of reporting and lack of clarity in the law creates for taxpayers, and places the blame on everyone except the IRS for requiring reporting from counties and failing to clarify the unclear positions in the law."

See also the IRS letter:

https://www.irs.gov/pub/irs-wd/12-0018.pdf