…The difference between deductible and non-deductible property taxes is not a new rule. Mello-Roos fees, which pay for roads, schools, fire stations and other public facilities in new developments, have not been deductible from state income taxes since the legislature authorized the special assessments 30 years ago.
Many property owners, however, routinely deduct the entire amount of their property tax bill from their state income taxes instead of only the parts that legally are deductible. Others just use the amount on the Form 1098 that their mortgage holder paid to the county tax collector on their behalf.
Until now the Franchise Tax Board didn’t to go after them. A new computer system being installed this year, however, will allow the agency to distinguish the portions of property tax bills that are deductible and non-deductible, said Daniel Tahara, a FTB spokesman.
He said the new scrutiny of property taxes is not due to any political pressure to increase tax revenues to close the state’s gaping budget deficit. “Every year we look at areas of non-compliance and this happened to be one that came up,” he said.
Tahara said the agency is announcing the new rules now so taxpayers can make any adjustments this year for their 2012 state tax filing next year.
He said the FTB had planned to impose the new rules on 2011 tax filings due this April, but held off after getting “negative feedback” from tax preparers and the public…
