Property Tax Write Offs Targeted by State

27 Feb Property Tax Write Offs Targeted by State

Beginning in 2013, California’s Franchise Tax Board will scrutinize real estate tax write offs filed by property owners as part of their 2012 tax returns.  Their main focus is to ensure that deductible and non-deductible portions are appropriately designated.  Unfortunately, this will likely reduce the allowed itemized deductions for property owners by thousands of dollars.

The change isn’t the result of new legislation, but rather a technology upgrade at FTB’s headquarters in Sacramento.  Targeted to be installed and fully operational in 2012, the system will allow the FTB to properly differentiate between deductible and non-deductible portions of property tax payments.  Since taxpayers typically deduct the total amount of their property tax bill – or the 1098 amount provided by their mortgage company – the state leaves billions in potential taxable revenue on the table every year.  Mello-Roos fees in Orange County account for more than $200 million of non-deductible amounts expected to be written off for tax year 2011.  The updated system could give Sacramento approximately $40 million of “found” income from Orange County alone.

The system upgrade was put into place after a review turned up the shortcoming in property tax deductions.  While it will be completed this year, the FTB delayed enforcement until next year.  That will allow property owners and tax preparers – as well as mortgage companies – time to correct shortcomings in their documentation, the FTB delayed implementation until next tax year.