Kingston Mortgage Explains Mello Roos
When it comes to purchasing a new or recent home, perspective home-owners have many questions about Mello Roos. It is understandable considering the intricate nature of Mello Roos. Kingston Mortgage professionals took the time to explain every aspect of Mello Roos. We hope you find it helpful.
What is Mello Roos?
In 1978, Proposition 13 passed and stabilized the amount of taxes that can be assessed to a home’s value to increase no more than 2% each year. This made it easier for home buyers to maintain their property taxes and predict future property taxes.
As a result, local government became limited in the tax revenue they could receive. This limitation ultimately led to impeded growth and maintenance of local communities. In order to bridge the gap left by the lack of tax funds, Mello Roos was created.
Mello Roos is an additional tax assessed to properties in newly built communities. Districts that pay Mello Roos are known as Community Facilities Districts (CFD). In purchasing a home in a CFD, the buyer understands that their property taxes will be higher compared to the property tax in other municipalities. In general, new housing communities are part of the CFD. This is because the housing developer typically pays for the infrastructure of roads and schools out of their own pocket. In order to keep home prices low, home-owners pay Mello Roos to repay the expense of the infrastructure.
The tax goes to developing community resources and is assessed to the properties for no more than 40 years. Mello Roos funds not just new developments but also projects to make substantial improvements to old districts. Some examples of resources covered by Mello Roos include the creation of roads and sidewalks, the installation of sewage systems, the installation of electrical and phone wires, and the creation of schools, libraries, fire and police stations. This tax is used by counties, cities, schools, and districts whenever the regular state budget is unable to accommodate their projects.
Is Mello Roos Tax Deductible?
In short, typically no.
According to the IRS, only “ad-valorem” are tax deductible. An “ad-valorem” is a property tax based on the value of the home. Most Mello Roos taxes are not based on the value of the home which may not make it tax deductible. However, the IRS has stated that there are exceptions: If the Mello Roos taxes went to maintenance or interest charges it would be considered a tax deductible. But most Mello Roos tax fund building public schools, libraries, police stations, etc. To make Mello Roos deductible, one would need to show how much of the taxes went to maintenance and/or interest charges.
How often do I pay Mello Roos?
Home-owners pay Mello Roos twice a year when they pay their general property tax bill. Although Mello Roos is a special tax payment, they are subject to the same penalties that apply to regular property taxes when they are due.
How long do I have to deal with Mello Roos?
State law allows Mello Roos payments for up to 40 years. However, some Mello Roos only require payments for 20 years. Those looking to purchase a new property will have the option to pay their Mello Roos tax in its entirety at the time of purchase.