Special Assessments Research 2008

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House Research Department Updated: September 2008 Special Assessments Page 11 will be paid for with special assessments, the local government may issue the bonds without holding a referendum.34 Special assessments generally are not deductible. For individual income tax purposes, property owners who claim itemized deductions may deduct state and local property taxes in determining federal and state taxable income. However, property taxes that provide specific benefits that tend to increase the value of the property may not be deducted.35 Federal individual income tax instructions36 specify that property taxes may be deducted if the tax is based on the assessed value of the real property and the tax is assessed at a uniform rate on all property in the jurisdiction. The instructions further specify that to be deductible “the tax must be for the welfare of the general public and not be a payment for a special privilege granted or service rendered to you” [the taxpayer].37 Property taxes may not be deducted if the taxes are charges for services or assessments for local benefits. Services and Unpaid Charges Cities and urban towns may impose charges by ordinance to pay for certain services that often are paid for with general revenues (e.g., property taxes). In addition, they may adopt an ordinance to collect unpaid charges imposed on an individual property using the special assessment collection process. The statute authorizes using special assessment collection process to pay for the following services:38 • Snow, ice, or rubbish removal from sidewalks • Repair of sidewalks, alleys • Weed removal from streets and private property • Elimination of public health hazards from private property • Installation or repair of water service lines, street washing • Tree trimming, removal, and treatment of insect-infested or diseased trees on private property • Operation of street lighting systems • Operation and maintenance of a fire protection or pedestrian skyway system • Certain housing inspections and delinquent vacant building registration fees under a municipal program designed to identify and register vacant buildings 34 Minn. Stat. § 429.091, subd. 3. 35 IRC § 164. Note that when an assessment increases the value of a property, the basis of the property increases by the amount of the increase in the property’s value, and the assessment is not allowed as a deduction. However, if the assessment increases the value of improvements to the property, such as buildings, rather than increasing the value of the land itself, the property owner may be able to claim depreciation for the value of the improvement. This is the case for property owned by both individuals and businesses. 36 Internal Revenue Service publication 530, “Tax Information for First-Time Homeowners, for use in preparing 2006 Returns.” 37 Ibid. 38 Minn. Stat. § 429.101.