Special Assessment When Buying Home Deductible?

[ETax847]

A client had to pay about $10,500 in a special assessment to the building when he closed..... is there any way he can deduct that, and if so, where?

[BulldogTom]

Normally, these are re-assessments by the county for property taxes and should be included on the schedule A for property taxes. Make sure it is based on the value of the land and not bond payments.

It happens all the time when a property on the county books for X dollars of value is sold for a higher amount. The property taxes go up, and the county issues a special assessment to get the difference in the amount of taxes from the day of the sale to the date that the regular assessment is made by the county.

Hope this helps.

Tom

Hollister, CA

[Elrod]

Special assessments differ from property taxes in that the latter are levied for the support of the general functions of government, whereas special assessments are levied for the cost of specific local improvements such as streets, sewers, irrigation, and drainage. Common examples of special assessments are water, sidewalk, and sewer assessments, or other special improvements such as parks and recreational facilities. In some instances special assessments are periodically levied by improvement districts; in other instances they are levied only by the city and county for a particular work or improvement.

Owners often either pay the special assessments in installments over several years or pay the balance in full. The sales contract should specify which party is responsible for payment of assessments, if any, at the time of closing. Typically, however, the seller pays for all improvements substantially completed by the closing date because of the increased property value generally resulting from the improvement. Improvements not substantially completed but authorized or in progress are usually assumed by the buyer. In any event, this matter is open to negotiation between buyer and seller.

Special assessments are generally apportioned according to benefits received, rather than by the value of the land and buildings being assessed. This apportionment is frequently called the assessment-roll spread. For example, in a residential subdivision, the assessment for installation of storm drains, curbs, and gutters is made on a front-foot basis. The property owner is charged for each foot of his or her lot that abuts the street being improved.

For income tax purposes, real estate taxes are currently deductible. Special assessments, however, are not directly deductible because they increase the value of the property and thus, like any other capital expenditure, add to the cost or basis of the property. The assessment is generally not eligible for depreciation, however. In some cases a special assessment is deductible if the investor/taxpayer can prove that all or part of the assessment is made for maintenance, repairs, or interest charges.

Also see: http://www.irs.gov/irb/2008-47_IRB/ar07.html

[ETax847]

Per the client, the special assessment was because the building had a huge project and the unit he bought had not paid the special yet

so he had to pay it in full at closing which he did. It was for exterior work to the building and parking garage alterations.

Based on that it was used for maintenance and repairs to the building, not the unit, how should I treat it?

[taxtrio]

Add "special assessment" to cost basis. Not deductible... for improvements. Just as a special assessment for street paving, sewer lines/water lines etc

Not interest, not a "tax".

[jklcpa]

Add it to basis.

[ETax847]

Thanks guys!