Special Assessment Tax: A Definition

As a homeowner, you’re obligated to pay a number of fees – one major fee being your property tax. You might also notice that in addition to regular property taxes, you must pay a special assessment tax. What is a special assessment in real estate, though, and what is a special assessment tax?

Below, we’ll talk about what a special assessment is, how it works, who pays it and answer some frequently asked questions about special assessment taxes.

A special assessment tax in real estate is an additional property tax assessed by the local government to pay for their property and neighborhood improvement 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 HOA special assessments. However, a homeowners association (HOA), which is formed by the owners of condominiums, townhouses or other properties, might also be subject to special assessments. Instead of a municipality, these HOA improvements are determined by the HOA board of directors and apply only to the members of that HOA.

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. For example, if a home changes owners since an assessment has been levied on a property, the 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.

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 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.

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

• Water and sewer lines
• Streets, roads and sidewalk paving
• Infrastructure projects
• Street lighting
• 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

Here are some frequently asked questions surrounding special assessment taxes.

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. That doesn't include special assessments, though. 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 is a 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 determined by an assessor.

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 to help you lower your tax bite.

Special assessment taxes often catch homeowners by surprise. You may have asked, “What is a 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 a prospective home buyer planning to purchase a home in the near future, research special assessments in real estate before you buy.

Finally, check on property tax deductions and exemptions with a tax professional, and learn more about how your property taxes compare to the rates of state property taxes across the U.S.