An appraiser in California is determining operating expenses for a rental property in a Mello-Roos Community Facilities District in Temecula. The property's annual tax bill shows: Base Prop 13 tax $8,500, Mello-Roos special tax $4,200, and a school bond assessment of $600. For the income approach NOI calculation, how should these taxes be handled?
Correct Answer
D) Include all three amounts ($8,500 + $4,200 + $600 = $13,300) as operating expenses because they all appear on the property tax bill and represent mandatory annual charges
In the income approach, ALL mandatory property tax charges are included as operating expenses. In California, this includes the Proposition 13 base tax (approximately 1% of assessed value), Mello-Roos special taxes, school bonds, and any other voter-approved assessments. These are all obligations of the property owner that reduce net operating income, totaling $13,300 in this case.
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