MELLO-ROOS LIENS are municipal bonds issued to fund streets, sewers and other infrastructure needs before a housing development is built. This financial device allows developers to raise money to complete off-site improvements in a house or condo subdivision. The developer is usually responsible for making payments on the bond until the home is sold. The homeowner then becomes responsible for payment via a special tax.

The Mello-Roos Community Facilities Act is a way that a city or governmental district can skirt the property tax limitations of Proposition 13. The city can include the cost and maintenance of infrastructure items in the property tax bill as a special tax, which is allowed to go above the limits of Proposition 13.

This has been a boom for developers who need help financing their projects and for municipalities anxious to upgrade new developments under the restrictions of Proposition 13. The downside is that if something goes wrong with the economy or the project, the municipality may have to foreclose on the developer.

Warning: Whereas property taxes are totally deductible from state and federal income taxes, Mello-Roos taxes may only be partially deductible depending upon whether they are for maintenance or improvements. Consult with your C.P.A. before claiming such a deduction.

Gift and estate taxes

For federal purposes, the transfer of property by a gift or inheritance is taxed. Exemptions may reduce the taxes and sometimes eliminate them.

A gift of San Diego, California real estate may avoid federal estate taxes. So if a person wants to give a property away, it will most likely escape (the future) federal estate taxes. But, if you are to avoid federal gift taxes, usually only a fractional interest in the property should be given away each year. For example, you could give a son and daughter each a 1/30 interest in your home every year for 15 years to give the house to your children.

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