WHAT IS Special Assessment Tax

A special assessment tax is a tax charged to property owners to help fund specific infrastructure projects, such as creation or upkeep of roads, schools or sewer lines. This tax can only be charged to taxpayers whose property lies within a designated special assessment district.

Special assessment districts are often created because regular property taxes in the area are not sufficient to pay for the infrastructure required to fully fund a municipality. For example, if a small town has lost a significant amount of its population, a special assessment tax may be necessary for the town to collect enough revenue to continue to operate schools, town offices or a library.

Special assessment taxes may also be created to help build a new community where little population existed previously. For example, if a developer builds a large subdivision in a previously unpopulated area, the municipality may designate that subdivision a special assessment district. This way, the municipality can charge residents there a tax specifically to help pay for the creation of roads, sewer lines and other necessary infrastructure that neither the developer nor the municipality are prepared to pay for.

BREAKING DOWN Special Assessment Tax

Special assessment taxes may also be used for specific projects that would benefit the local community. For example, a municipality may create a special assessment tax to build a public recreational center or park. For projects like this, a special assessment tax may only last for a certain number of years. Once the project has been paid for, residents no longer have to pay it.

Amounts of special assessment taxes and what they pay for can be found through a search of the local county assessor’s records. Researching special assessment taxes is important for prospective homebuyers because the cost of these taxes could potentially make the monthly cost of a mortgage prohibitive. For example, a special assessment tax to maintain sewer lines may be $1,200 per year. This adds an extra $100 in tax to a homeowner’s monthly payment if they live within that district.

Deducting Special Assessment Taxes

Special assessment taxes are not generally deductible when filing taxes. Regular property taxes may be deducted, but this is because property taxes are seen as a contribution to the larger community. They help fund infrastructure well beyond a specific neighborhood or subdivision. Special assessment taxes are generally seen as only benefiting the people who live within that district, and thus are not deductible. There are exceptions to this, however. Some special assessment taxes are deductible because they are considered to benefit a wider community than simply the residents of the district.