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 applied when any upgrades potentially benefit your neighborhood.
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.
How Special Assessment Taxes Work
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.
Deductions Available for Homeowners
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.
Condo and Homeowners Association Fees
If you live in a condominium or a community with a homeowners association, you may pay additional fees to the condo association or HOA, potentially tied to the assessed value of your home. HOA assessment or condo assessment fees are not taxes but rather fees that you've agreed to contractually, and they're generally not tax deductible.
Exceptions are if you own rental or investment properties, in which case such fees are deductible business expenses, and if fees cover something that would otherwise be deductible, such as a portion of deductible property tax on a shared piece of land. If you are self-employed and have a home office, you can also usually deduct HOA or condo fees in proportion to how much of your home is used for your office.
- Comanche County, Oklahoma: What Are Special Assessment Taxes?
- Internal Revenue Service: Topic 503 - Deductible Taxes
- Internal Revenue Service: Publication 551 , Basis of Assets
- Internal Revenue Service: Publication 523 - Selling Your Home
- Special assessment tax - Wikipedia
- The Hignell Companies: Can HOA Fees Be Claimed on Your Taxes?
- Mecklenburg County, North Carolina: Special Assessments