The cost of owning a home goes far beyond the actual amount you agree to pay when you make a purchase. Expenses such as mortgage interest, real estate taxes and maintenance can increase the cost of home ownership by thousands of dollars a year. Special assessment taxes are an additional type of tax you might have to pay in addition to normal real estate taxes for improvements that benefit your local area.
Special Assessment Tax Basics
When you buy a home, you typically have to pay real estate taxes to state and local governments. Real estate taxes are based on a government estimate of the value of your home. This is known as its "assessed value." A special assessment tax is an amount you must pay above and beyond your normal property taxes to pay for special projects that benefit your neighborhood. The amount you pay for special assessment taxes may be based on the assessed value of your home.
Special assessment taxes can be imposed on you for a variety of projects that involve repairs or improvement to your property. Projects that might result in special assessment taxes include sewer and water system improvements, improvements to roads and sidewalks, installation of public utilities, cleaning, landscaping and the removal of old buildings. In some cases, property owners might be able to petition the government to pursue projects that result in special assessment taxes, such as the installation of speed bumps.
Property Tax Deduction
The government lets homeowners deduct the cost of state and local real estate taxes on federal income tax returns. According to the Internal Revenue Service, property taxes are deductible only if they are imposed uniformly on all properties in a jurisdiction and based on the assessed value of a property. Since special assessment taxes only benefit properties in specific areas, they are usually not tax deductible. Special assessment taxes are only deductible when they are paid to fund maintenance or repairs.
Selling a home can result in a profit called a capital gain if you sell it at a price that is higher than the original purchase price. For tax purposes, the gain on the sale of a home is equal to the sale price of the home, minus selling expenses and the "adjusted cost basis." The adjusted cost basis is the original purchase price of the home with certain additions and subtractions. Special assessment taxes that increase the value of a property are added to a property's cost basis. An increased cost basis could potentially save money on capital gains taxes.
- Minnesota House of Representatives: Special Assessments
- Comanche County, Oklahoma: What Are Special Assessment Taxes?
- Mecklenburg County Government: Special Assessments
- Internal Revenue Service: Topic 503 - Deductible Taxes
- Internal Revenue Service: Publication 551 - Main Content
- Internal Revenue Service: Publication 523 - Main Content