Can I Deduct Supplemental Property Tax?

Whether you own your own home (and use it as a primary residence) or have possession of investment properties, you understand one thing. Namely, state and local property taxes can generally be deducted from your federal income taxes. While the Tax Cuts and Jobs Act of 2017 caps those deductions at $10,000 (or $5,000 if you are married and filing separately), the deductions can be used to help offset income. The result is a potentially lower tax burden.

But what happens If you find yourself in a state that assesses supplemental property taxes? Can that be considered a legitimate deduction? In a word, yes. Now, let’s continue on this topic and delve into what, exactly, supplemental property tax is.

Defining a Different Tax

One challenge involved with finding information about supplemental property taxes is that they are assessed mainly on a state level. More specifically, only California mentions anything about supplemental property taxes. 

But what are they?

Supplemental taxes are additional, secured taxes due when a property changes owners, or is renovated. Another thing to know about this type of tax is that it’s sent out in addition to the regular, secured annual tax on a property. 

In California, this tax dates back to July 1983, when Senate Bill 813 amended the California Revenue & Taxation Code, leading to the creation of “supplemental assessments.” These reassessments reflect an increase or decrease in property tax generated by a supplemental event, such as a sale or renovation. It becomes effective the first day of the month following a change in ownership or new construction completion date. 

To determine that supplemental tax, an assessor examines a property’s fair market value, then subtracts its prior assessed value. The difference between the two is dubbed the “net supplemental value,” which is enrolled as a supplemental assessment.

If that net supplemental value is negative, your property’s value has declined, meaning a supplemental tax refund check will end up in your mailbox. If that supplemental value is positive, then a supplemental tax bill is generated. You need to pay this bill, in addition to your annual property tax bill.

Adding to the confusion, you could receive two supplemental tax bills, depending on the date of your reassessment. If the supplemental event takes place on or between January 1 and May 31, you’ll receive two bills:

  • The first bill is for the current fiscal year when the supplemental event took place
  • The second bill is for the upcoming fiscal year

Taking the Deduction

While it might seem as though supplemental tax bills mean more paperwork, payments on these taxes are eligible for federal deductions. According to Intuit, you can enter those taxes with original taxes paid on your home (by selecting “deductions and credits” and inputting the information under “real estate taxes”). 

The final takeaway on this topic is that supplemental taxes are a state-level thing. California has them. So does Texas – though supplemental taxes in the Lone Star State are more of a corrective nature, generally in the face of an appeal. The state-level supplemental tax issues and questions are best answered by tax professionals familiar with the state’s tax codes. 

 

This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice, meeting the particular investment needs of any investor. There is no guarantee that the investment objectives of any particular program will be achieved. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.

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