In 1978 Californians passed Proposition 13, which limited the ability of local public agencies to increase homeowners' property taxes based on a property's assessed value. With that source of funding gone, the Mello-Roos Community Facilities Act was created in 1982 to provide an alternate method of financing needed improvements and services.
The Mello-Roos Community Facilities Act of 1982 gives any county, city, special district, school district the authority to establish a Mello-Roos Community Facilities District (CFD) to fund public improvements and services, i.e., streets, sewer systems and other basic infrastructure, police protection, fire protection, ambulance services, schools, parks, libraries, museums and other cultural facilities. The CFD can recover expenses needed for its formation and administer annual special taxes and bonded debt. CFDs are normally formed in undeveloped or older areas, to build roads and install water and sewer systems for new homes or businesses or to finance new schools or other facilities for the community.
Once approved, property owners within the CFD, because they benefit from improvements and services, pay a special tax each year based on mathematical formulas that consider use and size of the property and lot. After bonds are paid off, a CFD can continue to charge a reduced fee to maintain the improvements.
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The CFD has the right to foreclose on property when special taxes are delinquent for more than 90 days, no matter how small the amount of the tax. The tax is transferrable and the seller must disclose this to the buyer and make a "good faith effort" to obtain a Notice of Special Tax from the local agency that levies the special tax, and provide it to the buyer.
The net investment income tax was created as part of the Affordable Care Act. The tax has caused much confusion and led to rumors that it is a 3.8 percent tax on real estate. This tax will only affect high-income households that realize a substantial gain on an asset sale, including a home sale, but may only affect 2-3 percent of home sellers.
According to the law, any home sale gain (principal residence) must be more than the $250,000-$500,000 capital gains exclusion ($250,000 for single filers and $500,000 for joint filers). For the few households that see a gain of more than the $250,000-$500,000 exclusion, only the amount above the exclusion would be factored into the tax calculation, and that would still only apply to high-income households, which the law defines as single people earning $200,000 a year and joint filers earning $250,000 a year.
Any amount of gain above the exclusion would be plugged into a formula to see if it is taxable. The amount then could be subject to the 3.8 percent tax. Although it takes effect in 2013, any impact on taxes wouldn't happen until 2014 because it is not a tax on a real estate sale but rather, it is a tax on a capital gain.