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If I own a rental property in California, where there are Mello-Roos fees, and I decide to pay off the Mello-Roos, can I deduct that as a business expense?
My actual scenerio is that I want to purchase a home that the owner currently rents out, but due to the Mello-Roos on the property (~300/month and still has about 5 years to go), my monthly payments will be out of my comfortable range. Without Mello-Roos, I'm able to pay a higher price for the home and keep my payments to comfortable levels ... so if there is an incentive for me to put in higher offer and get the seller to pay off the mello-roos, it may be a win-win situation for the both of us.
If I own a rental property in California, where there are Mello-Roos fees, and I decide to pay off the Mello-Roos, can I deduct that as a business expense?
My actual scenerio is that I want to purchase a home that the owner currently rents out, but due to the Mello-Roos on the property (~300/month and still has about 5 years to go), my monthly payments will be out of my comfortable range. Without Mello-Roos, I'm able to pay a higher price for the home and keep my payments to comfortable levels ... so if there is an incentive for me to put in higher offer and get the seller to pay off the mello-roos, it may be a win-win situation for the both of us.
I suppose this is up to interpretation of tax code. If MR fits the IRS definition of "property tax", then it is deductible.
There is conflicting information on whether Mello-Roos taxes are deductible from federal and state income taxes. In general, only "ad valorem" taxes (based on the value of the property) are deductible. Mello-Roos taxes are not ad valorem. However, IRS stated that
"Assessments on real property owners, based other than on the assessed value of the property, may be deductible if they are levied for the general public welfare by a proper taxing authority at a like rate on owners of all properties in the taxing authority’s jurisdiction, and if the assessments are not for local benefits (unless for maintenance or interest charges)." [SIZE=2][[/SIZE][SIZE=2]4[/SIZE][SIZE=2]][/SIZE]
California uses the federal standard for deductibility of property taxes on state income tax. [SIZE=2][[/SIZE][SIZE=2]5[/SIZE][SIZE=2]][/SIZE] In either case, the taxpayer has the burden to establish that deduction of Mello-Roos taxes falls under these criteria.
HOWEVER, the OP is referring to Mello-Roos fees on a rental property.
Since the Mello-Roos fees are a necessary expense of owning the rental property, I'm fully confident that the fees ARE expensible on the OP's Schedule E.
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