Special Assessment Tax Definition, Who Pays, Example

What Is a Special Assessment Tax?

A special assessment tax is a surtax levied on property owners to pay for specific local infrastructure projects such as the construction or maintenance of roads or sewer lines. The tax is charged only to the owners of property in the neighborhood that will benefit from the project. That neighborhood is called the special assessment district.

Prospective homebuyers should be aware of any special assessment tax on a property they are considering. Special assessments may be levied for a pre-set number of years, and they are often not tax-deductible.

Like property taxes, special assessment taxes are based on the assessed value of the home.

Key Takeaways

  • A special assessment tax is a local tax in addition to property taxes that is levied on homeowners to fund a specific project.
  • The assessment is levied for a pre-set number of years and then is discontinued.
  • Prospective homebuyers can research special assessments on a property at the county assessor's office.

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Examples of Special Assessment Taxes

Special assessment districts may be created because the regular property taxes collected are not sufficient to fully fund a municipality. For example, if the population of a small town has declined dramatically, a special assessment tax may be necessary to continue to operate schools, the police department, or a library.

Special assessments more typically are used for the extraordinary expense of a project that benefits the community. For example, a town might levy a special assessment tax to build a public recreation center or a park. The tax is intended to last for a set number of years. Once the project has been paid for, the tax is discontinued.

The Special Assessment District

However, a special assessment tax may not be levied against an entire municipality. For example, if a large subdivision is built in a previously undeveloped part of town, the municipality may designate that new neighborhood as a special assessment district. The tax revenues collected would be used to pay for necessary infrastructure projects such as access roads and sewer lines that neither the municipality nor the developer wants to pay for.

Special assessment taxes on a property and what they are being used for can be found through a search of the local county assessor’s records.

A special assessment is not deductible from federal taxes if it benefits only a defined area rather than an entire municipality.

Special Considerations

Whether or not a special assessment tax is deductible from federal taxes depends on the boundaries of the special assessment district and the nature of the project funded by the tax.

If a project is seen as benefitting an entire community, it is deductible. If it is seen as benefitting only a portion of the community, it is not deductible. If a special tax is used to fund maintenance or repairs, it is deductible. If the money is used for any other purpose, it is not.

So, among the examples above, the special assessment for infrastructure in a new subdivision would likely not be deductible.

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