Special Assessment on Siding

You can add the amount of capital improvements to your cost basis when the asset is improved and put into service no matter which option you choose to pay. Interest paid on a loan to improve a rental is also deductible on your schedule E/

you have a capital improvement of $18,000  which would be depreciated over 27.5 years

you would need a loan amortization table to calculate the interest paid each year about $16,000 over 19 years. .  the only issue is what happens to the deductibility if you sell.   normally such a loan would need to be paid off upon sale.    I certainly wouldn't buy a property on which a lien could be placed if someone else did not make loan payments.  

1. Would I be able to deduct the $150/month as a maintenance expense?

No. It's not a payment for maintenance any way you look at it. Its a property improvment hands down. Basically, weather you do the 19 year payoff option or pay it up front doesn't matter tax-wise. Either way it's a capital improvement.

2. How would I factor this into my cost basis to depreciate? Would this be the $18,000 principal or principal and interest?

You'll enter the entire cost of the improvement ($18,000) as an asset in the assets/depreciation section with an "in service" date of the date the work is actually completed. (Not the date you paid it.)  The date you "purchase" (pay) the assessment is one date you will enter, and the in service date is a completely separate date. The asset is classified as Residential Rental Real Estate and will be depreciated over the next 27.5 years. Depreciation starts on the "in service" date - not the date you pay it.

If you take the "pay over time" option, then any interest you may pay on this "loan" is deductible as a completely separate expense each year you actually pay it, and only the amount of interest you actually pay each year.  It is not included in the assets section at all.. You'll just include that interest as "additional interest paid" in the mortgage loan section. It will be included in the interest paid on line 12 or line 13 of the SCH E. (depends on where you enter it, as to which line it appears on.)

3. What occurs when I sell?

Generally when you sell, all debts on the property are paid off before you get any of the money from the sale. At the closing when the closing agent hands you the money, all debt owed on the property has already been subtracted from your sale price by the closing agency and those debtors paid. When you close on a property, there are a number of people present besides you and the buyer. But usually the closing agent acts as the "authorized agent" for any and all debts owed by the seller on the property. So the following people or their representative will be present at the closing.

1. The Seller

2. The buyer

3. The mortgage holder of the seller if the seller still has a mortgage on the property.

4. The lender of the buyer if the buyer is using a mortgage to buy the property from the seller.

5. The HOA representative if there are covenants requiring HOA participation and fee payments of any and all property owners of the property. (They want to be sure the buyer understands their legal requirements to pay HOA fees and that they sign the correct paperwork obligating them to do so.)

6. Any other lein holders on the property, so that they get their money *before* the seller gets theirs.

Generally, the closing agent will be the "authorized agent" for items 3-6 above. Representing your lien holders and debtors is but one of the may services paid for in the closing costs assessed by the title company or closing agent.