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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 11168
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I own a commercial condo, and the assn. is looking to do one

Customer Question

Customer: I own a commercial condo, and the assn. is looking to do one of two things: 1) have a one time special assessment for a large capital project, or 2) try to get a loan, and then increase dues to cover the expenses. I rent my condo units to others, and thus can deduct condo dues. Can I deduct all of a special assessment at once, or would it need to be capitalized, and can I deduct the full amount of dues on my commercial condo rentals?
JA: Thanks. Can you give me any more details about your issue?
Customer: Not really, the amount of improvements to be done to repair the exterior and renovate the building equals about 400K., I own 40 percent of the building
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Customer: But I can revisit the issue later
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

Hi,

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I hold a JD (Juris Doctorate, a doctoral degree in the law), concentration in Tax Law & Corporate law, an MBA (specialization in finance & tax), and BBA from Stetson School of Business and Economics, as well as CFP and CRPS designations.

I can help here
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so Sorry, but your intuition is good ...All of your rental expenses are deductible, though not always right away.

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This follows the same tax policy/logic as rental expenses for any landlord

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Along with HOA fees, you can write off repairs, maintenance, landscaping, advertising, legal costs of eviction and money you pay to property managers.

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But Major improvements -- a new roof, a kitchen remodel -- AND assessments for improvements to the entire property or common areas - have to be capitalized and depreciated.

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Please let me know if you have questions

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Lane

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Customer: replied 1 year ago.
The association dues are not separated and much of the large expense is from deferred maintenace; would I not have a strong argument that all dues can be written off monthly (the association would get a loan to perform the improvements and charge owners monthly as part of dues)
Expert:  Lane replied 1 year ago.

I'm not sure what you mean by "not separated."

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Ongoing HOA fees are always a rental expense for a landlord renting out condo/house ... As a rental expense on schedule E.

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One time assessments, however, retain the character of of their intended use.

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Impovements and major renovations, regardless of how financed, are capital improvements.

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IRS provided clarity in distinguishing capital improvements from routine maintenance in 2011.

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It indicates that recurring activities (inspection, cleaning, testing, replacing parts, and so on) that are expected to be performed as a result of the use of property to keep the property in its ordinarily operating condition aren't capital improvements. The activity is considered routine if, at the time the property was placed in service, the taxpayer reasonably expected to perform the activity more than once during the property's life.

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What you are describing falls into what the clarification would deem a capital improvement. And, again, a SPECIAL ASSESSMENT, to facilitate a capital improvement retains the character of the underlying use.

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Investment that restores a propert to like new condition ( a capital improvement ) is distinguished from money spent to restore to it's previous condition (a repair).

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The table at the bottom of this page helps with the analysis:

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http://http://www.dbbllc.com/newsletters/focus/mar2012/irs-clarifies-capital-improvement-vs-repair-expense