general info about
Special Service Areas

What is an SSA?

Special Service Areas (SSAs) are used by Municipalities to build Infrastructure Used by Municipalities to fund Repair and Maintenance.

Deductibility

Special Assessment taxes can generally be deducted when the tax is for maintenance, repairs, or interest charges related to those benefits as well as local benefits

Non-Deductible

Special Assessment taxes can not be deducted for taxes charged for local benefits, and improvements that tend to increase the value of your property. The assessments are treated as capital expenditures

Local Benefits

Examples of local benefits:

a) Streets
b) Sidewalks,
c) Sewers lines
d) Curbs
e) Water mains
f) Public Parking facilities

Law: Taxes for Local Benefits

Internal Revenue Regulation 1.164-4 states
“So-called taxes for local benefits paid for local benefits such as street, sidewalk, and other improvements, imposed because of and measured by some benefit inuring directly to the property which the assessment is levied are not deductible as taxes.”

Law: Capital Expenditures

Internal Revenue Code Section 263 states that no deduction shall be allowed for any amount paid for new buildings or for permanent improvements or betterments made to increase the value of any property or estate

- Considered to be additions to property basis

- Depreciable item to business property owners only Additional basis for individual property owners used to offset future realized gains

Legal Precedent

Harris v Commissioner, TCM 1126, TC Memo 1980-56

A special assessment bond was not deductible as a tax when paid nor was the the interest portion of it deductible where it was not a separately stated amount.

The special assessment tax was determined to be for local benefits in addition the taxpayer failed to present evidence to determine portion of the payment attributable to interest charges.

 

Are Assessments for Real Estate-Related
Local Benefits and Improvements Deductible?

IRS Release No: CHI-2004-10

CHICAGO --- Now that tax filing season is here, homeowners should be aware that some real estate tax-related items, such as local benefits and improvements, may or may not be tax deductible. Local benefits and improvements often referred to as "Special Assessments" include assessments for streets, sidewalks, water mains, sewer lines, public parking facilities, and similar improvements.

Special Assessment taxes are deductible if they are for maintenance, repair, or interest charges related to those benefits. For example, a charge to repair an existing sidewalk and any interest included in that charge is deductible. If only a part of the assessment is for maintenance, repairs, or interest, the allocation of the amounts assessed must be shown in order to claim the deduction. If the part of the assessment for maintenance, repair, or interest cannot be determined, none of it is deductible.

Assessments made for local benefits and improvements are not tax deductible if the improvements increase the value of the property and the property subject to the tax assessment is limited to the property that benefits from the improvements. For example—a tax assessment for homeowners in a new community to pay for the initial installation of streets, sidewalks, and sewer lines for that community would not be tax deductible. In these situations, the basis of the homeowner’s property should be increased by the amount of the tax assessment.

Tax assessments for local benefits may be included in a homeowner’s real estate tax bill. If a copy of the real estate tax bill is not furnished, the homeowner should request it from the taxing authority or mortgage lender.

More information about real estate taxes can be found in IRS Publication 530, Tax Information for First-Time Homeowners, or Publication 17, Your Federal Income Tax. These publications are available through the IRS Web site at www.irs.gov or by calling the IRS at 1-800-829-3676. Assistance is also available by calling the IRS help line at 1-800-829-1040.
 

 

faqs about
Special Service Areas (SSAs)

What are Special Service Areas (SSAs)?

Special Service Areas (SSAs) are becoming more prevalent in Illinois. SSAs are special taxing districts in municipalities that are established by ordinance, often at the request of developers of new housing subdivisions, in order to pass on the costs of the streets, landscaping, water lines, and sewer systems to homeowners who reside within the SSA. The SSA assessments pay off the municipal bonds that are issued to pay for the infrastructure. A Special Service Area can include a neighborhood, an entire subdivision, or an entire village.

What are the purposes of an SSA in a residential area?

There are three purposes for SSAs in residential areas: to pay for the repairs and maintenance of existing infrastructure, to pay for new infrastructure, or to be in place in the event a homeowners association dissolves and no longer maintains the infrastructure (these SSAs are also known as "shadow" or "fall back" SSAs). New homes in SSAs are typically marketed at lower prices because the infrastructure costs aren’t rolled into the cost of the home. Instead, the infrastructure costs are paid annually through SSA assessments.

How is the assessment collected?

A Special Service Area assessment is a tax lien on the property, and the assessment will appear on a homeowner’s property tax bill as a line item that says "Special Service Area Number X: $XXXX.00". Most assessments range from $1000 to $3000 per year, increasing anywhere from 2 percent to 5 percent per year, generally for a period of 20 to 30 years.

Is the assessment tax deductible?

Even though these assessments appear on property tax bills, they are only tax deductible if they are for the repairs or maintenance of existing infrastructure. The assessments are not tax deductible if they are for new infrastructure. The interest portion of the assessment is tax deductible only if the taxing body separates the principal from the interest, which is not done in most counties. Senate Bill 2635, an IAR initiative that was signed into law in August 2004, will help taxpayers in new SSAs determine whether or not their assessments are tax deductible by requiring that the purpose of the SSA be stated in the ordinance establishing the SSA. For additional information on the tax liabilities, please refer to the Internal Revenue Service’s Publication 535 on real estate taxes, which can be found at www.irs.gov, or contact the IRS at 1-800-829-1040.

How do you know if a home is located in an SSA?

If the house is a resale, a simple check of the property tax bill will tell you if it’s located in an SSA, as the assessment will appear on its own line. If there’s a line for an SSA assessment that says $0, either the assessment has been prepaid, or the SSA is a "fall back" SSA that will only start assessing dollar amounts if the homeowners association fails and the municipality then has to maintain the infrastructure. If the home is newly-constructed, there’s a greater chance that it will be in an SSA, so it’s a good idea to specifically ask the developer if the home is in an SSA. The SSA assessments on new construction homes won’t appear on the property tax bills until the following year. For greater assurances, you can contact the county clerk’s office and give the clerk the home’s PIN, or you can call the municipality and ask if that home is located in an SSA. It’s good practice to check with the county clerk or SSA administrator to find out the following: is the home in an SSA, what is the life of the bond, how much is the current assessment, at what percentage will the maximum increase each year, is the assessment available to be prepaid, and if so, what is the cost to prepay? It’s also good to know who will maintain the infrastructure after the life of the bond. Most municipalities will take over the maintenance, but it’s a good idea to check with the municipality to make sure. SB2635 requires that the ordinance establishing the SSA state whether or not the municipality will take over the maintenance after the bond is paid.

What should I know if I’m listing a home that is located in an SSA?

When selling a home that is located in an SSA, it’s important to take the assessment into consideration when determining the listing price. Keep in mind that since the home’s infrastructure costs aren’t rolled into the cost of the home, the home’s listing price will be lower than a similar home that isn’t located in an SSA. However, if the homeowner has prepaid the assessment, the home should be listed with those costs included, just like a similar home that’s not in an SSA. A home with a prepaid assessment is a benefit to a potential buyer because, while the home will be listed for a higher price than similar homes without prepaid assessments in the subdivision, the potential buyer will be able to deduct the mortgage interest, unlike the SSA assessments, on his federal taxes.