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State of California Franchise Tax Board

2011 Schedule CA (540) Real Estate Tax Deduction Changes

Important update, December 1, 2011: We created a new webpage with guidance to help taxpayers understand how to correctly deduct real estate taxes on their tax return.

Important update, November 1, 2011: FTB has decided to put this change to the Schedule CA on hold for a year, therefore, we will not be requesting information about the deductible portion of real property tax on the 2011 Schedule CA.

Instead, we will move forward with education and outreach and include information about this issue in the 2011 tax return instructions and what to expect for 2012. We will also direct taxpayers to our website for more information about deductible and nondeductible real estate taxes and the importance of reviewing the real estate tax bill.

Real estate tax is an allowable itemized deduction for federal and state income tax.

However, in the property tax bill:

  • Real estate tax amounts for special assessments such as Mello-Roos or various services provided to specific properties are generally not deductible.
  • The real estate tax amount based on the assessed value of the taxpayers’ property is generally deductible.

To help reduce tax return errors and educate taxpayers on correct deduction amounts, we are updating the 2011 Schedule CA (540) and the instructions.

The updated 2011 Schedule CA (540) will request information about the properties used for real estate tax deductions on Federal Schedule A (Form 1040). Specifically, taxpayers report the total real estate tax paid, total allowable deduction, and property address information.

The updated 2011 Schedule CA (540) instructions will inform taxpayers how to figure the correct amount allowable as a deduction.

California conforms to federal law regarding the real estate tax deduction; therefore the allowable deduction for state and federal purposes should be the same.

We published an article regarding this change in the September 2011 version of Tax News.


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