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Rental Property Special Assessment Deduction or Depreciation

Forum|Forum|2 years ago
February 28, 2024
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Hello!

In 2023 I had a $40,000 HOA special assessment I had to pay on a rental property.

I believe I would have to depreciate this over 27.5 years and cannot count it as an expenses for 2023 but I wanted to confirm this is correct.

To add on to this question, I also replaced an HVAC system in a rental property in 2023 at a cost of $8,000. I believe this would be the same scenario in that I would have to depreciate it vs expense it but wanted to confirm this is correct as well

Thank you!

Best answer by RobertB4444

The special assessment is actually more complicated than that. It depends on what it was for. If it was for maintenance and repairs then it's deductible. If it was for improvements then it is depreciable. You will need to figure it out and maybe break it into pieces if it was for both.

The new AC unit is depreciated as part of the rent unit over 27 and a half years.

@andre_arrieta

R

RobertB4444Answer

The special assessment is actually more complicated than that. It depends on what it was for. If it was for maintenance and repairs then it's deductible. If it was for improvements then it is depreciable. You will need to figure it out and maybe break it into pieces if it was for both.

The new AC unit is depreciated as part of the rent unit over 27 and a half years.

@andre_arrieta

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A

andre_arrietaAuthor

Hello Robert and thank you for your responses!

The special assessment was for repairs to exterior concrete balconies on a high rise building that were apparently not built correctly when the building was initially built. They were getting semi rebuilt. So it kind of sounds like a repair but I suppose it could possibly be looked at as an improvement?

A

andre_arrietaAuthor

It can be confusing like many IRS tax laws. The hot water tank will definitely qualify, you can see if the HVAC qualifies below.

There are two separate options under Safe Harbor.

Safe Harbor Election for Small Taxpayers - For the HVAC -
- Special requirements - The cost of all repairs, maintenance and improvements is less than or equal to the smallest of these limits:
  - 2% of the unadjusted basis of your building or
  - $10,000
Safe Harbor for items that each cost $2,500 or less - Available for the hot water tank
- No special requirements