Is paving assessment deductible?

Question

Three years ago, after a yes vote by the affected homeowners, our county government billed us $8,000 as our individual assessment to have our dirt road paved. If we didn't want to pay the money all at once, they set us up with a 10-year plan, with interest assessed like mortgages, i.e., payments comprised mostly of interest the first year, down to minimal interest the last year. Question: Is that interest deductible on our Federal Income Tax Return? And if so, how, and could we claim the deduction retroactively? Thanks.

Answer 1

The assessment of $8,000 for paving is not a deductible expense. This amount is added to the basis of your property. Since this is now part of the value of your property, the interest charges for this improvement are tax deductible.

You will need documentation of how much of your payments are for interest and how much are for the improvement itself, and deduct only the interest.

Quote from IRS Pub 530:

You can deduct assessments (or taxes) for local benefits if they are for maintenance, repair, or interest charges related to these benefits.

Answer 2

No, that type of assessment is not deductible as property taxes. Only ad-valorem property taxes -- taxes based upon the value of the property -- are deductible on your Federal income taxes. State rules may vary on that so it may be different for your state tax return.'

If the payment of the assessment is secured by a mortgage note on the property, interest may be deductible as mortgage interest. If the security is statutory however that is not a mortgage and the interest is not deductible. In that case, a home equity loan would be one way around that.

Answer 3

That's a tough question. I know that interest expense is deductible on expenses like your home mortgage but I'm not sure about this.

Answer 4

No, it's not deductible, although you could add it to the basis of your house when you're calculating gain when you sell it. If you owe any taxes on the gain from the sale, this would reduce them.