A Non-Ad Valorem assessment is a specific charge that remains constant regardless of the asset’s underlying value. In contrast, an Ad Valorem tax is a tax assessed on the value of an underlying asset. As the underlying asset’s value increases or decreases, the tax liability changes.
A Non-Ad Valorem tax is often more appropriately called an “assessment” because it is not a tax on the value of an item.
The distinction between Ad Valorem and Non-Ad Valorem is important for U.S. federal tax purposes. For example, homeowners in the U.S. are generally allowed to deduct property taxes paid on their principal residence as an itemized deduction on Schedule A (Itemized Deductions).
However, the deductible amount is limited to the Ad Valorem portion of the property tax bill. If their property tax bill includes any Non-Ad Valorem charges, those are not deductible as an itemized deduction.1
Example of Non-Ad Valorem for Property Taxes
Jane Doe owns a single-family home in Orlando, FL. Jane’s house is currently worth about $500,000; however, the assessed value for property taxes is $400,000. Jane uses the property as her homestead, so she receives a $50,000 exemption, which makes the taxable value $350,000. Jane’s property tax bill has two sections: Ad Valorem Taxes and Non-Ad Valorem Assessments.
The Ad Valorem section lists the taxing authority, the millage rate, the taxable value, and the taxes levied. The amount of tax owed to each taxing authority will depend upon the property’s value.
The section for Non-Ad Valorem assessments includes the levying authority, assessment description, number of units, and dollar amount of the assessment. This section does NOT include any millage rates or taxable value figures because these assessments are levied on a per-property basis and not impacted by the property’s value.
Jane’s Non-Ad Valorem assessments include a Street Lights assessment of $42 and a Garbage Service assessment of $290. Jane’s total Non-Ad Valorem assessments of $332 will not be deductible as itemized deductions on her Form 1040. She will, however, be able to deduct the amount paid for Ad Valorem taxes.
View our video tutorial on how to complete Schedule A when your property tax bill includes both Ad Valorem and Non-Ad Valorem charges.
More Information on Property Tax Deductions
Taxpayers can find more information related to property tax deductions in the Schedule A Instructions and in IRS Publication 530 (Tax Information for Homeowners).