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Special Assessment Tax: A Definition

Melissa Brock4-minute read

February 28, 2022


As a homeowner, you may not realize that in addition to regular taxes, you may pay special assessment tax. Wondering "What is a special assessment?"

Great question! Let's clear it all up and explore the details.

What Is A Special Assessment Tax?

A special assessment tax in real estate is an additional property tax assessed by the local government to pay for their property and neighborhood projects. The tax goes toward a specific geographic region known as a special assessment district, and the property owners in that area are the only ones who must pay.

Some counties list special assessments on the non-ad valorem tax line of a property’s bill but they don't always do this.

A special tax assessment is levied on taxpayers in order to fund a local project, usually something like road construction or maintenance, and is unrelated to HOAs. However, a homeowners association, which is formed by the owners of condominiums, townhouses or other properties, might also be subject to special assessments. However, instead of a municipality, these HOA improvements are determined by the HOA board of directors and apply only to the members of that HOA.  

Special Assessment Liens

The state or local government assigns a special tax in the form of a special assessment lien with a small interest rate to each home or property tax bill.

Before you buy a home, you must get an official assessment search or municipal lien request from the local government. Learn everything you can about the assessment roll. After all, it's possible to find an unpaid assessment on a property. Here's how that can work: If a home changes owners since an assessment becomes levied on a property, new owners may not know about it.

Liens are legal tools used to protect the interests of local governments to ensure that property owners pay their special assessments. When an entity has a lien, it holds a legal claim against a piece of property.

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How Does The Special Assessment Tax Work?

A special assessment tax usually works like this:

  1. A state or local government creates a resolution of intent for the project. This states the proposed improvement and the intended district.
  2. A time and date for a public hearing are set and held. At that hearing, the property tax rate is announced. Taxpayers will vote and can choose to dispute the tax if they choose. Taxpayers can also get legal advice if necessary.
  3. Taxes then get collected. Homeowners who don't pay the tax could result in foreclosure proceedings on the lien.

Now, let's go over special assessment districts, examples of special assessment taxes and the deductibility of special assessment taxes.

Understanding The Special Assessment District

Regular property taxes collected may not sufficiently fund a particular municipality, so a special assessment district forms. A special assessment district is set up for property owners to compensate the city or municipality for all expenses related to repairs or property improvements.

The assessed value of a home and the special assessment district directly interrelate because each homeowner pays a portion of the overall cost based on the assessed value of their property.

Assessed value, which evaluates the fair market value of a property, is done by an assessor.

Examples Of Special Assessment Taxes

Take a look at the following special assessment taxes that can be implemented:

  • Water and sewer lines
  • Streets, roads and sidewalk paving
  • Infrastructure projects
  • Streetlights
  • Parking structures
  • Building construction projects
  • Public safety projects
  • Recreational projects, such as trails, skate parks, baseball fields and more
  • Other types of projects not listed

Are Special Assessment Taxes Deductible?

You may wonder if you can get a property tax deduction for special assessments.

The federal government allows property owners to deduct the cost of property taxes on federal income tax returns. However, that doesn't include special assessments. Special assessment taxes apply only to the special assessment districts.

However, a special assessment tax is deductible depending on the boundaries of the district. Maintenance, repairs or improvements are deductible, but any other purpose is nondeductible.

What Exemptions Are There For Special Assessment Taxes?

Special assessment taxes could boost the amount you pay in taxes. You could fit the criteria for property tax exemptions based on your age, disability or other factors. Consult a local tax professional for help about how to lower your tax bite.

The Bottom Line: Special Assessment Tax Is Levied On Property Owners

Special assessment taxes often catch many homeowners by surprise. You may have asked, "What is a special assessment in real estate?" and "What is special assessment tax?"

The short answer: A special assessment tax is levied on property owners to pay for projects that benefit the neighborhood's property. It's unrelated to an HOA special assessment.

Special assessment taxes usually occur when a state or local government creates a resolution of intent for the project and sets a date for a public hearing. Taxpayers can vote and choose to dispute the tax and get legal advice before taxes get collected by the municipality based on the assessed value of homes through a special assessment district.

If you're considering purchasing a home, check on special assessment real estate before you buy the home.

Finally, check on property tax deductions and exemptions with a tax professional, and learn more about HOA special assessments.

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Melissa Brock.

Melissa Brock

Melissa Brock is a freelance writer and editor who writes about higher education, trading, investing, personal finance, cryptocurrency, mortgages and insurance. Melissa also writes SEO-driven blog copy for independent educational consultants and runs her website, College Money Tips, to help families navigate the college journey. She spent 12 years in the admission office at her alma mater.