Taxes: Everyone’s favorite topic. The government gets their money one way or another and sometimes it’s in a convoluted way. One of those ways is a type of property tax called Mello-Roos. People new to California or new to buying a house often are puzzled by the reference to “Mello-Roos”. What’s important to understand is that this special assessment may add a couple thousand to a tax bill and can at times, prevent a person from qualifying to purchase a home!
So what exactly is Mello-Roos?
It is a form of financing that can be used by cities, counties, and special districts (such as school districts). Mello-Roos Community Facilities Districts (CFD) raise money through special taxes that must be approved by 2/3 of the voters within the district. This financing allows the builder to pass on assessed tax to the homeowners. Sometimes, the Mello-Roos assessments can be paid off. Some homeowners have done that when there was a minimal amount left, possibly to make a home more attractive for resale than others with remaining taxes. However, there are a large number of Mello-Roos assessments that go on indefinitely. Mello-Roos is intended to provide Quality of Life to communities.
What does Mello-Roos cover?
That “Quality of Life” is ensured by construction and maintenance of public roads, traffic light systems, storm sewers, water mains, fire and police states, ambulance services, public libraries, recreational parks, museums, and cultural facilities. Homeowners pay for these improvements through their Mello-Roos CFD as part of their property taxes, spread out over 20 years or more instead of as a tax on initial home purchase price. Commercial and industrial properties are also subject to Mello-Roos. All proceeds raised from Mello-Roos assessments must be used exclusively to finance the specific public facilities and/or services that were authorized in your CFD. You can see that without these types of infrastructure and services, we don’t have much.
So where the heck did it come from?
When Prop 13 passed in 1978, it limited the ability of local governments to use property tax to construct public facilities and services – Senator Henry Mello of the Monterey area and LA Assemblyman Mike Roos co-authored the Mello-Roos Community Facilities Act of 1982. In newer areas such as Roseville, Rocklin, Lincoln, Folsom, El Dorado Hills, and Elk Grove, many homes will have an additional Mello-Roos tax on it that is found on the property tax bill.
Do all homes in California have Mello-Roos?
No, not all new developments are affected by Mello-Roos special taxes. If a new infill neighborhood is built within an existing community, they may not be subject to Mello-Roos taxes. Generally speaking, any house built after 1982 may have Mello-Roos on it. The older the home, the less the tax. The newer the home, the greater the amount! By law, homeowners must disclose the tax to a potential buyer.
So what’s the big deal?
Housing prices can be mis-leading – because you may have both HOA (Home Owners Association dues) and Mello-Roos plus other assessments, a financed buyer may have an additional 2% to add to the monthly payments. That extra amount may tip the scale unfavorably with too much debt where a potential buyer doesn’t qualify. Even cash buyers, need to be aware of Mello Roos as an extra payment especially those on a fixed income.
Well but they’re tax deductible right?
No. You cannot deduct Mello-Roos taxes if they are assessed to fund local benefits and improvements that tend to increase the value of your property. Mello-Roos taxes may appear on your annual county property tax bill with other deductible property taxes. That does not mean you can’t deduct the Mello-Roos taxes with your regular property tax. To deduct local benefit taxes, you must be able to show the amount of the taxes that are for maintenance, repair, or interest. Always seek competent tax counsel for your particular tax situation. I’m just outlining generalities.
How do I find out if a property has Mello-Roos?
If you want to check if a property has Mello-Roos assessments, you can find the tri-county area assessments in links provided below. Unfortunately, each county does it a little differently. In Placer, they identify Mello-Roos with the initials “MR” and in Sacramento County they spell it out. I find that if you have questions, it’s always best to call the county and ask. If you’re looking to purchase a property, ask your Realtor to look up the property to see the total annual assessment for Mello-Roos.
Where to find the Mello-Roos taxes in the tri-county area. In other parts of California, simply Google the county name plus “tax bill search” and you should find a website with the tax bills or a number to call for someone to look it up for you. You can usually find it with the property address if you don’t have the APN (Assessor’s Parcel Number). For the Sacramento Metro area, feel free to send me the property address and I will be happy to look it up for you. Send to: firstname.lastname@example.org
Do I have to pay Mello-Roos?
If it’s an assessment on a property you own, the answer is “yes”. A Mello-Roos CFD has the legal right to foreclose for non-payment. If the tax is greater than 150-180 days in arrears, the CFD may initiate foreclosure proceedings.
Another note, if you have an older parent who needs help taking care of bills, ensure that the taxes are paid! You can look them up relatively easy online.
Paying for our quality of life in California comes with a price tag. Whatever name you want to call it, it’s a tax that’s going to get collected.