Mello-Roos Deductions

California Franchise Tax Board Backs Off Challenge of Mello-Roos Deductions


The Franchise Tax Board (FTB) had planned to require California residents who deducted property taxes on schedule A to report each property's assessement number starting in 2012. Their intent was to limit the deduction on the tax return to only that portion of the property tax related to the home's assessed value (ad valorem tax), thereby making "special assessments", such as Mello-Roos fees, non-deductible. This would have resulted in a large decrease in the deduction for property taxes. But the IRS came to the rescue. In IRS Information Release Letter 2012-0018 dated April 10, 2012, the IRS stated that there is no statutory requirement that real property tax be an ad valorem tax in order to be deducted. The Release Letter goes on to state that assessments on real property based on anything other than the assessed value may still be deductible if the charges are levied for the general public welfareat a like rate on owners of all properties in the taxing authority's jurisdiction. As a result of this pronouncement, the FTB has stated in a release dated April 13, 2012, that they will no longer require the reporting of assessment numbers for 2012.