Real Property Taxes
In response to our education and outreach effort on the deductibility of real property taxes, we continue to receive many comments and questions about what is deductible and how to find it on a property tax bill. The biggest question perhaps is whether taxes have to be ad valorem to be deductible. To clarify our position on this, we issued Legal Division Guidance 2011-12-01. We explain that the Internal Revenue Service's (IRS) well established official position, to which California law conforms, is that the only real property taxes deductible as an itemized deduction are those that are assessed on the basis of the value of the property, i.e., ad valorem. Our Legal Division Guidance also discusses that there are limited exceptions where a portion of other amounts on a real property tax bill may be deductible.
Since most taxpayers have assumed that the total bill amount paid is deductible, we have updated our website, Understanding the Real Estate Tax Deduction, with sample property bills from every county to help taxpayers find amounts on their bills that are based on the property value. Included on our website are instructions on how to review the tax bill. One thing we ask taxpayers not to do is use Federal Form 1098 'Mortgage Interest Statement’ to determine the amount of real estate taxes that are deductible. The amount reported on Form 1098 reflects the total taxes paid, not the deductible portion.
Our position on the real estate tax deduction is not based on a law change and is the same as the official IRS position, which means taxpayers should deduct the same amount for real property tax on their federal returns.