Non Deductible Real Estate Items
Not all real estate related items are deductible on your taxes. This page details the items which are non deductible as real estate taxes.
Charging for Services
An itemized charge for services to specific property or people is not a tax, even if the charge is paid to the taxing authority. This is non deductible as a real estate tax if:
- A unit fee for the delivery of service (such as a $5 fee charged for every 1,000 gallons of water you use).
- A periodic charge for a residential service (such as a $20 per month or $240 annual fee charged for trash collection).
- A flat fee charged for a single service provided by your local government (such as a $30 charge for mowing your lawn because it had grown higher than permitted under a local ordinance).
Assessment for Local Benefits
Local benefits that increase the value of your property are non deductible. Local benefits include the construction of streets, sidewalks, or water and sewer systems. You must add these amounts to the basis of your property.
You can, however, deduct assessments (or taxes) for local benefits if they are for maintenance, repair, or interest charges related to those benefits. An example is a charge to repair an existing sidewalk and any interest included in that charge.
If only party of the assessment is for maintenance, repair, or interest charges, you must be able to show the amount of that part to claim the deduction. If you cannot show what part of the assessment is for maintenance, repair, or interest charges, its non deductible.
Transfer Taxes (or Stamp Taxes) are Non Deductible
You cannot deduct transfer taxes and similar taxes and charges on the sale of a personal home. If you are the buyer and you pay them, include them in the cost basis of the property. If you are the seller and you pay them, they are expenses of the sale and reduce the amount realized no the sale.
Homeowners Association Assessments
Assessments paid to a local homeowner’s association for the purpose of maintaining the common areas of the residential project and for promoting the recreation, health, and safety of the residents are not deductible as real property taxes.
You cannot deduct these assessments because the homeowners association, rather than a state or local government, imposes them.
Tenants’ Payment of Taxes
You generally cannot deduct a portion of your rent as property taxes. This is so even where state or local law identifies a portion of the rent as being tied to tax increases.
Tenants have been allowed a deduction for property taxes in the following areas: In Hawaii tenants with leases of 15 years or more may deduct the portion of the rent representing taxes. In California, tenants who have their names placed on tax rolls and who pay the taxes directly to the taxing authority may claim a depreciation.
In New York, liability for tax is placed directly on the tenant and the landlord is a collecting agent for paying over the tax to the taxing authorities. However, since the landlord also remains liable for the tax, the IRS ruled that the rent is a non deductible real estate tax for the tenant’s payment.