How to allocate a HoA assessment for Rental property

Forum|Forum|1 year ago
January 7, 2025
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I have a passive rental condo that is going thru a massive rebuild due to termite/water damage. We will have at least 3 large HoA assessments over the 3 yr project that started last year. The assessments will cover (1) lots of labor intensive repairs (i.e. repairing bad framing lumber, fixing water sealing, fixing parking and landscape destroyed by work, etc.) and (2) lots of major improvements (i.e new roof, siding, insulation, doors, windows, decks, etc.).

1) It is impossible for me to attempt to split up this cost into repair % and improvement % based on how the contractor is billing the work which includes every unit and many common areas buildings. Do I just take a wild guess at splitting these assessments into repairs and improvements?

2) My understanding for depreciating improvements is that each separate asset (roof, siding, door, deck etc.) should be tracked and assigned a value independently so that in the future if we again replace just the Roof then I can dispose of the current roof when I start depreciating the new roof. So, I'm assuming just like number 1 above I would take a guess and assign values to each asset so they can be tracked separately?

Any help is greatly appreciated!

mglauner

From what you state in your question, it sounds like the work being done is 'repairs' to fix damages. If a sliding door is being installed to replace a damaged one, for instance, that would be a repair.

Improvements include:

Remodels and room additions (including decks and porches)
New or upgraded landscaping, irrigation, sprinkler system
Hardscape such as pavement, block or retaining wall, patio
Fencing
Swimming pool, spa
Storm windows, doors
New roof
Central vacuum or security system
Upgraded wiring, plumbing, duct work
Central heating, AC, humidifier
New furnace, water heater
Filtration, soft-water, or septic system
Built-in appliances
New flooring or wall-to-wall carpeting
Upgraded insulation
Satellite dish

You would only need to depreciate items considered 'improvements'. Repairs can be deducted in the year that you paid for them.

Here's more helpful info on Capital Improvements.

taxtime9999Author

Thanks for the response! I do agree that this project sounds like "a giant repair" because of the reason (termite/water damage) we are taking on all this work, but I will add a bit more detail to clarify my confusion on trying to separate repair cost vs improvement cost. The 25 year old Roof has some issues (both water damage and design at the edges) that made it such that replacing the "old" roof was better off than repairing the current given the age. To me I just feel that the new roof is an improvement where the current roof (shingles) is at the end of its' expected life anyway. However, the damaged lumber under/at side of roof seems like a repair. So, some roof related labor is for repairs and some for the new roof. The labor cost is not broken down enough in order to assign some to repair and some to improvement.

The current windows have to be removed in order to repair the termite damaged lumber that holds them in place. Nothing really wrong with some of the current windows however, HoA rules mandate that only "bomb proof hurricane" windows can be used when any window is repaired/replaced. So, we have to discard current windows and get fancy new ones. The new windows (crazy expensive with the hurricane rating) seem to fall into the improvement bucket since they are indeed adding much value to the property for resale. But again, no real way to break out labor cost that went into repairing surrounding lumber vs labor that was for install of new window.

Same story with the new siding as it is a crazy expensive upgraded improvement vs the old siding. But replacing the water damaged insulation behind the siding seems more like a repair. Again, no way to break down labor cost.

I'm currently leaning towards just taking my total HoA assessment ( which will be around 60K ) and taking my best guess at assigning some dollar amount (based on the sq foot of my unit) to each new asset (ie. roof, siding, window, etc.) that can be depreciated over time and the remaining I will expense as repair work. If this were a single family home it would be a little easier to pinpoint cost, but the challenge here with a condo is you have a shared roof, siding, etc. and also some (not sure how much ) of my assessment money is going to common area building repairs / improvements.

Thanks again for the opinion and help.

RobertB4444

Given the details in this message I think that I might just capitalize the whole thing. But you have good ideas here. Just document the process that you use to make the division between repairs and improvements. Whatever you decide - to use square footage as a tool or capitalize the first two assessments and expense the 3rd, etc. - just make sure that you're prepared to explain it to anyone who asks.

@taxtime9999

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