Question: My town has assessed against me a real estate betterment for new sewer lines installed in my street. May I deduct this amount on my tax return?
Answer :

Probably not. In general, taxes charged for local benefits and improvements that increase the value of the property are not deductible as real estate taxes. Examples of betterments include assessments for sidewalks, streets, water mains, sewer lines, and public parking facilities. Although you cannot deduct these betterment assessments on your income tax return, you can increase the basis of your property by the amount of the betterment. With an increased basis, your capital gain (if any) will be decreased, should you later sell your house.

However, if you are assessed a local benefit tax or assessment for a maintenance, repair, or interest charge related to a betterment, you may be able to deduct the repair assessment on your return. For example, if you are assessed a tax to repair an existing sidewalk, you may be able to deduct that amount on your return. If only a portion of the assessment is for maintenance or repair, you can deduct only that portion. Your real estate tax bill may provide a breakdown of the assessment charges.