are hoa special assessments tax deductible
If you are single and have lived in your primary residence for at least two years, then up to $250,000 of profit is tax-free at the time of sale. If you’re married and file taxes jointly, then up to $500,000 of the profit is tax-free.My best tax tip: Consult with a CPA or other tax professional. In my experience, you’ll save more on taxes when you use a tax professional to prepare your tax return. My neighbor says that special assessments are tax-deductible. — M.K. Your neighbor is wrong. It’s time to revisit this question again. Although I have covered this information in a previous column, it is one of the most frequently asked questions by condo owners. Offsetting the advantages of electing to be taxed as a homeowners asso-ciation is one rather important disadvantage: homeowner associations are taxed at a rate of 30 percent (32 percent for timeshare associations). This compares unfavorably to the tax rate on regular corporations. The instructions further specify that to be deductible “the tax must be for the welfare of the general public and not be a payment for a special privilege granted or service rendered to you” [the taxpayer]. 37 Property taxes may not be deducted if the taxes are charges for services or assessments for local benefits. All associations that elect to be taxed as a homeowners association are entitled to a speciﬁc $100 deduction from its taxable income. This means that associations with relatively small amounts of taxable income could have their tax liability eliminated by the application of the speciﬁc $100 deduction. (Homeowners who take the standard deduction instead of itemizing can deduct a portion of their property taxes.)•Mortgage points — If you recently purchased or refinanced a home, you may have paid “points” to the lender to buy down your interest rate. Dear Ray,I live in a condo. I know that my monthly homeowners-association (HOA) dues are not tax-deductible. What about special assessments for major repairs? An expense that is incurred because of the existence of a nonexempt income item would be categorized as a non-qual-ifying expense. An example of this type of expense is state income taxes. The other type of expense categorized as non-qualifying is an expense incurred to produce nonex-empt income. If an associa-tion qualiﬁes and elects to be taxed under this section, it does so by ﬁling Form 1120-H, U.S. Income Tax Return for Homeowners Associations. There are several factors that could inﬂuence an association to elect to be taxed as a homeowners association. As was previously mentioned, if an association ﬁles its tax return as a regular corporation, its tax could be as low as 15 percent of its taxable income. In many cases, an association’s taxable income as a homeowners association is very close to its taxable income as a regular corporation.
Yes