Condominium Property Tax Question
I own two condominiums incorporated in a Homeowners Association. I live in one and rent the other out. They are housed in one structure utilizing a duplex design. There are a total of 4 duplex designed structures in the total Homeowners Association ownership. There is Homeowners Association Common Area that includes the grounds around the structures and the ground under the structures as well as the shells of the structures. The only portion of the property that I have title to and individual ownership of is from the floor and ceiling treatments and the wall sheet rock inwards. (i.e I own the floor tile, the wall sheet rock and the ceiling sheet rock and any portion of electrical/plumbing/HVAC that extends inward beyond these boundaries) This property is located in the state of Kansas. Currently I am assessed, as an individual, the Property Tax for the "structure" containing my two condos and the Association is assessed, as a corporation, Property Tax for only the ground around the structures.
My question relates to why I am assessed Property tax for portions of the Homeowners Association property to which I do not own and is owned by the corporation? (this portion is the ground under the structure and the shell of the structure)
Should I be assessed only for the portion that I have title of ownership to? Should the Association be assessed for the shell of the structure and the ground under it?
Is the assessment determination the responsibility of the assessing authority or should it be determined by the Association Charter and Homeowners Assoc Agreement?
NewKidinTown2,
Thank you for your information. This HOA is set up a little different than what you describe. The HOA Agreement states that the HOA is responsible for all repairs/maintenance/insureance coverage for the structure shell of each unit as well as the grounds surrounding the structures. Only the Property Tax is set up the same as what you describe. I believe that is only due to the way the original developer crafted the document.
I do see how the Schedule A relationship benefits me if I pay the Property Tax. I did not realize that it would not be decuctible if it was an HOA assessment. My thinking was that the taxation must flow directly to titled owner of any portion of the structure.
One more question. If HOA assessments are not deductible on Schedule A are they deductible elswhere? Since I rent out one of the units the HOA assessments for that portion is a business expense. Or is it simply that I must nadle each unit seperately treating the accounting for the rental side seperate from the side I live in. I think I just answered my own question but since I am new at this I guess I am looking for verification.
Quote:The HOA Agreement states that the HOA is responsible for all repairs/maintenance/insureance coverage for the structure shell of each unit as well as the grounds surrounding the structures. I think that what you missed in my description is that the common areas are owned by all the individual unit owners as a whole. Here is the key point -- the individual unit owners as a whole are the condominium owners association. The unit owners elect a board of directors (or association officers) to actively manage the business of the association
Quote:I do see how the Schedule A relationship benefits me if I pay the Property Tax. I did not realize that it would not be decuctible if it was an HOA assessment. My thinking was that the taxation must flow directly to titled owner of any portion of the structure.HOA and COA assessments are personal expenses for your residential unit and, therefore, are not Schedule A deductions. Since the municipal taxing authority includes the value of your share of the common areas in your property tax assessment, you can say that the taxes on the structure do flow through to the titled owners -- because all the titled owners as a whole are the association.
Your association does pay taxes, too. At least I hope they do. Usually, a COA or HOA will maintain a replacement reserve account. The association might have a portion of their reserves invested in either short term or mid-term interest paying vehicles such as treasury bonds or CDs. The income earned on these investments is taxable income to the association. That is why you probably see a resolution at each annual meeting to elect to be taxed as a corporation rather than as an association. The difference is a 15% rate vs a 30% tax rate. This tax is part of your association overhead and probably paid from the income earned on your reserves.
If the taxes paid cause the reserves to fall below whatever required threshhold is mandated by your board of directors, then your COA/HOA dues will be increased to make up the difference. So, in effect, you would still pay your proportionate share of the taxes. If the association were taxed directly for property taxes, then your condo fees would be increased accordingly or a special assessment would be levied on the association members, unless a property tax reserve account supported by your COA dues was already in place a sufficient to pay the property taxes.
Quote:One more question. If HOA assessments are not deductible on Schedule A are they deductible elswhere? Since I rent out one of the units the HOA assessments for that portion is a business expense. Or is it simply that I must nadle each unit seperately treating the accounting for the rental side seperate from the side I live in. I think I just answered my own question but since I am new at this I guess I am looking for verification.COA and HOA assessments or dues for your residence unit are personal expenses and are not deductions anywhere on your personal tax return. Schedule A is the form you use to itemize your allowed personal deductions.
For your rental property, the COA/HOA dues and assessments are operating expenses to your rental activity. Claim the COA/HOA expense on Schedule E, line 18, Other. Just enter "Condo association dues" as the item description.
Most definitely keep the rental accounting separate from your residence accounting. You should have started with your acquisition costs. Part of your purchase price is allocated to the rental unit and the rest to your residence unit. The basis in your rental unit is your depreciation basis. You are not allowed any depreciation on your residence unit.
If the two units share a common roof, which needs to be replaced, half of the cost is used to increase your basis in the residence unit. The other half of the roof replacement cost allocated to your rental unit is recovered through depreciation.
Same with property taxes and hazard insurance. If your tax assessor taxes both units as a single property tax entity, then you divide the tax bill between the two units. The residence unit allocation is a Schedule A deduction while the rental unit property tax allocation is a Schedule E expense item. Hazard insurance is not a Schedule A deduction for your residence unit, while it is a Schedule E expense for your rental unit.
If you financed the purchase of both units under a single mortgage, half of the mortgage interest is a Schedule A deduction, the other half is a Schedule E expense.
PMI is handled the same way as your COA fees. The portion of your PMI that is allocated to your residence unit is not deductible, while the portion of your PMI that is allocated to your rental unit is an insurance expense on your Schedule E.
Repairs to your residence unit are personal non-deductible expenses, while repairs to your rental unit is a Schedule E expense item.
This is just an overview. Suggest you contact your accountant for specific details.[ Edited by NewKidinTown2 on Date 11/20/2004 ]
NewKidinTown2,
Thank you again for the detailed information.
I forgot to state that the HOA is structured as a Non-Profit so the "taxes" are negligible. I will be sure to split out all accounting so that I do not experience any costly errors downt the road.
You have given me a lot to think about and research. Your assitance is much appreciated.