Watch out California taxpayers, it's a whole new ballgame

The rules have changed for the 5 million or so property owners who have been taking the entire amount they pay off their state income taxes. Beginning with this year's tax bill (the one due in April 2013), the Franchise Tax Board is requiring that property taxes be split between deductible and non-deductible portions. From the OC Register:

The difference between deductible and non-deductible property taxes is not a new rule. Mello-Roos fees, which pay for roads, schools, fire stations and other public facilities in new developments, have not been deductible from state income taxes since the legislature authorized the special assessments 30 years ago. Many property owners, however, routinely deduct the entire amount of their property tax bill from their state income taxes instead of only the parts that legally are deductible. Others just use the amount on the Form 1098 that their mortgage holder paid to the county tax collector on their behalf.

A computer system being installed this year will allow the Franchise Tax Board to distinguish the portions of property tax bills that are deductible and non-deductible.