Do Not Write Off Mello-Roos on State Income Tax
California tax-payers will have to be extra-careful when filing their 2012 state income taxes in 2013, as the State Franchise Tax Board cracks down on homeowners who have been illegally writing off their Mello-Roos fees or taxes paid via the 1915 Bond Act.
Although Mello-Roos and 1915 Bond Act taxes have not been legal deductions in the past, many California homeowners routinely wrote them off their state income taxes because they were lumped in with their total property taxes. However, new rules will require that taxpayers break down their property taxes into deductible and non-deductible portions. A new computer system will track deductible and non-deductible property taxes, making it easier for the Franchise Tax Board to catch homeowners who are in non-compliance.
The FTB initially planned to enforce the new rules for the 2011 state taxes (due April 2012), but due to negative feedback, decided to hold off until next year to allow homeowners and tax preparers to get their paperwork in order.
If you live in a Mello-Roos community, you should check with your CPA before filing your state income taxes next year to ensure that you are not claiming an illegal deduction.
Read more about the new rules at the OC Register.