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Real Estate Tax Deduction

Purpose of bulletin

To inform staff that we have started to implement changes to the real estate tax deduction. Beginning November 15, 2011, we kicked off the Real Estate Tax Deduction Educational Campaign to help educate taxpayers and tax preparers on how to calculate the allowable real estate deduction as an itemized deduction.

Background

Real estate tax is an allowable itemized deduction for both federal and state income tax. California conforms to federal law regarding real estate tax deductions. Therefore, the allowable deduction amount should be the same on both federal and state returns.

Taxpayers will need to review their property tax bills (not federal IRS Form 1098, Mortgage Interest Statement) to determine the amount of real estate taxes that are deductible.

2011 540/540A

We provide guidance through What’s New and Other Important Information section of the 2011 California 540/540A tax booklets. No changes are made to the 2011 Schedule CA or instructions.

2012 540/540A

Beginning with the 2012 540/540A tax returns, we will add new reporting requirements to the instructions. Taxpayers will be required to report their property address, along with the property parcel number from their property tax bills. They will also need to report the total property tax paid including both deductible and nondeductible amounts.

Guidelines

Deductible Amount:

Generally, you are allowed a deduction for state, local, and foreign real estate taxes that are based on the assessed value of the property, commonly referred to as ad valoremor general tax levy. For most counties, the deductible amount is identified on property tax bills as the assessed value multiplied by an associated tax rate percentage.

Nondeductible Amount:

You cannot deduct the amounts shown on your tax bill that are not based on the assessed value of your property. These amounts are non-ad valorem and include special assessments, special taxes, Mello-Roos, direct levies, fees, and charges. These amounts are usually identified on property tax bills as amounts that do not include a tax rate percentage. There are limited exceptions where a portion of these amounts may be deductible.

Note: A few county property tax bills do not show tax rate percentages for items that may be deductible. However, sample property tax bills located on our webpage are enhanced to show the deductible and nondeductible amounts.

Non-ad valorem assessments may include, but are not limited to the following:

  • Mello-Roos or CFD’s
  • 1915 Assessment District Bonds
  • Parcel taxes, fees, and charges
  • Lighting and landscape
  • School or college measures and bonds
  • Water, sewer, and flood
  • Police and fire
  • Libraries

Sample bill

Our public website includes a sample property tax bill for all California counties that highlight amounts that are generally deductible and nondeductible to guide taxpayers to understand how to correctly deduct real estate taxes as an itemized deduction.

Taxpayer inquiries

Taxpayers can go to ftb.ca.gov, and search for real estate tax. For general information, they can also call us at 800.852.5711, weekdays, 7 a.m. to 5 p.m., except state holidays.