Special assessment -expense or depreciate?

Question

I have owned a 30-year old condo for about five years that I have rented out the entire time I have owned it. The roof is original, has been patched but still not fixed. The condo is doing a special assessment of about $4000 per unit that has to be paid in full. I'm not sure if this will be paid in 2018 or 2019.

Can this be expensed in the year that it was paid (the entire $4000) or does it have to be depreciated over 27.5 years (or some other timeframe) ?

Thanks!

Can this be expensed in the year that it was paid (the entire $4000) or does it have to be depreciated over 27.5 years (or some other timeframe) ?

Thanks!

Jason Lee · Answer

Typically the condo association owns the common areas, including the roof. Individual unit owners have a percent interest in the common areas which is how the HOA fees are determined.

Eamonn McElroy · Answer

Agree with @Carl Fischer that you should engage a tax CPA or EA to examine your unique facts and circumstances...

However the distinction between who owns the roof is important and determines tax treatment.  An HOA is a distinct legal and tax entity with its own tax return.

Doesn't matter that the board is made of of owners.

Carl Fischer · Answer

@Deb L.

I think my cpa and I consider it my roof being replaced/repaired whatever the case is and thus depreciate or take as an expense. Never got formal on who really owned it, hoa or members, because board is usually made up of owners unless builder owns it which is probably not the case after 30 years. Your cpa should figure this out relatively quickly.

Eamonn McElroy · Answer

Your HOA documents will spell out who owns what.  Typically the HOA owns the common areas -- the land, the land improvements, the exterior of buildings, the roof, the patios, etc -- and the homeowners own the interior only (i.e. "walls-in").

If the HOA owns the roof, you would expense the special assessment as the roof is an asset on their books and not your books.

Your balance sheet should be only "walls-in".  It's why you don't carve out and capitalize a portion of each monthly HOA fee for betterments, restorations, and adaptations to common areas.  That would be muddying the waters between the HOAs books and your books.

Deb L. · Answer

Now you've got me thinking... I thought the condo owners owned it all along.  We pay a monthly fee (about $300) to the condo association for upkeep of all the common grounds, roof repairs, maintenance of the parking lot (was recently resurfaced), pressure cleaning of the outside. It is not a co-op, just a standard condo in the suburbs.

But the individual condo owners are responsible for the interior walls, etc.

Thank you so much for taking the time to respond to this!

So do I need to find the condo documents to determine who owns the condo roof (the homeowners or the condo association?)

Do you know which situation is most common-the homeowners own it or the condo association and whether the cost is expensed or depreciated?

Eamonn McElroy · Answer

So the homeowners own the common areas -- e.g. the exterior of buildings (including the roof), the parking, the land, etc -- instead of the HOA?

It's not "walls-in" like most condos?

Deb L. · Answer

Homeowners (condo owners) own it.  Total cost will be about 170K, around 4K per condo owner.  Property manager runs it and we have been advised by them that there will be a special assessment.

Eamonn McElroy · Answer

Who owns the roof?  You as the owner or the HOA?