How Does Mello Roos Affect Home Buying
Beginning in the 2012 tax year, California Taxpayers were no longer able to deduct that portion of their property tax bill labeled "Mello Roos Assessment."
To be fair, California tax law has never allowed Mello Roos to be deductible...it's a special assessment and these are not considered a property "tax." But in practice, most homeowners did so. Until 2012, the Franchise Tax Board was unable to distinguish this portion of the property tax bill, so they could not pull it out. Beginning with the tax year 2012, they have a new computer system which can.
Other assessments will also be caught in this net....Water District Assessments, Fire Ant Assessments, Vector Control....all these must be removed before taking the property tax deduction. But these are small amounts of the total bill. Mello Roos is often as high as 40% of the total tax bill. This can result in quite a difference in the tax owed. In Orange County, many of the newer communities still have high Mello Roos Assessments in place.
Mello Roos is a flat fee which is billed with the property tax. Not all cities have Mello Roos. Mello Roos was put in place as new neighborhoods/developments came to sale to pay for the infrastructure of the area; streets, roads, schools, parks. As the cost of these improvements are paid for, the assessment amount due each year decreases, until it disappears. Most Mello Roos Assessments are scheduled to last between 20-25 years from the first home is sold.
As a Real Estate Agent who works in the Orange County, California area, I always try to make sure that potential homeowners are aware of the extra cost of Mello Roos. Additionally, it's important for the buyer to consult their CPA for specific information about taxes. One unintended consequence of this might be lower property values in the cities/communities which still have high Mello Roos Assessments. Something to consider when writing offers right now. One way to avoid this is to purchase a home without the Mello Roos Assessment, I can help you find these homes. There are many lovely communities and homes which have little or no Mello Roos.
Another hit on the California Tax Payer, something to remember whether you are a current homeowner in Orange County, or considering homeownership.
Disclaimer: I am not a CPA nor Tax Professional, this blog is intended to provide information only and not legal nor tax advice. I strongly suggest you check with your Tax Professional for advice on your specific situation.
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