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Understanding the Real Estate Tax Deduction

Did you know that not all real estate taxes are deductible? To be able to determine what is deductible and non-deductible, you will need a copy of your property tax bills.
Real estate tax is an allowable itemized deduction for both federal and state income tax. California conforms to federal law regarding real estate tax deductions. You should use the same deduction amount on both the federal and state tax returns.

Deductible: Generally, only the amount based on the assessed value of the taxpayers’ property is deductible. These amounts are commonly referred to as ad valorem or general tax levy on property tax bills. For most counties, the deductible amount is identified on property tax bills as the assessed value multiplied by an associated tax rate percentage.
Nondeductible: Most property tax bills also include non-ad valorem special assessments, special taxes, mello-roos, direct levies, fees, and charges that are nondeductible. For most counties, these amounts are identified on the tax bills as amounts that do not include a tax rate percentage.
Note: A few county property tax bills do not show tax rate percentages for items that may be deductible. However, sample property tax bills located on the Franchise Tax Board’s (FTB’s) webpage highlight the deductible and nondeductible amounts.

The FTB has developed a webpage that provides additional real estate tax information. This information includes:

  • How to review property tax bills to identify deductible and nondeductible amounts.
  • Items deductible and nondeductible.
  • Links to county websites for taxpayers to access their specific property tax bills, if available.
  • Links to samples of all county property tax bills that identify deductible and nondeductible amounts.
  • Links to all county tax collector contact information to request duplicate tax bills, if needed.

Beginning with the 2012 tax return, the FTB may also include reporting requirements related to real estate tax deductions. You may be required to report the property parcel numbers and the deductible and nondeductible amounts from your property tax bills. You will need copies of your property tax bills to report this information.

For more information on understanding the real estate tax deduction, go to ftb.ca.gov and search for real estate tax.

IRS Circular 230 Disclosure

31 CFR Part 10, section 10.35, requires me to notify you that any tax advice in this electronic forum (including any attachments, postings, pages or links) was not intended or written by me to be used, and cannot be used by you (or any other taxpayer), for the purpose of (i) avoiding penalties under the Internal Revenue Code of 1986, as amended, or (ii) promoting, marketing or recommending to another party any tax-related matter addressed herein.
The California Board of Accountancy has a "Consumer Assistance Booklet" describing such topics as "How Do I Select a CPA" and "What Services are Provided by CPAs?" It's available here in pdf format.

The firm of Alan F. Kingsley, CPA is licensed by the California State Board of Public Accountancy.

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