What is a Betterment Tax?

New road construction in your neighborhood might result in a betterment tax levy.

New road construction in your neighborhood might result in a betterment tax levy.

Real estate taxes are just another part of owning a home or business. The revenue generated by real estate taxes helps pay for local and state government operations and benefits the general population. Your local government might also levy a betterment tax against your real estate, but this tax is typically dedicated to specific projects and is not spent on the general budget.


A "betterment" is a specific type of project performed by a government entity that improves a specific area. Projects that qualify as improvements will depend on the taxing jurisdiction. Examples of improvements might include new roads or sidewalks in a particular neighborhood. Repairing an existing road or maintaining an existing sidewalk are typically not considered improvements and would not usually result in a betterment tax assessment.

Tax Liability

Since the betterment project presumably benefits nearby property owners rather than the community as a whole, a portion of the cost associated with the project might be levied against their property in the form of a betterment tax. Different taxing jurisdictions use their own methods for calculating the apportionment of betterment taxes to the affected property owners, which might include the amount of frontage abutting the project and the total cost of the project.

Income Tax Deduction

Some taxes are deductible when you file your federal income tax return, provided you choose to itemize your deductions. For example, you can deduct your state and local income taxes or your state and local sales taxes. You can also deduct your personal property taxes, and state and local real estate taxes, as long as those taxes were based on the assessed value of the property and were charged uniformly throughout the taxing jurisdiction. Because local betterment taxes are not assessed on the property value and are not charged throughout the taxing jurisdiction, they are not tax deductible, according to the Internal Revenue Service.

Property Basis

While you cannot deduct betterment taxes from your income when you file your federal income tax return, you can add the cost of your betterment taxes to the basis of your property. The increase in your property's basis will reduce the amount of capital gains taxes you will be liable for when you sell the property.


About the Author

Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.

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