We own a rental unit in a condominium governed by an HOA, and we've been hit with a $30,000 special assessment. This charge is to repay a loan the HOA took out to rebuild one of the apartment buildings in the complex that was destroyed a few years ago—this wasn't due to a natural disaster. Our rental unit is in a different building, so the rebuild doesn't directly enhance or improve the property we own or any shared spaces. The HOA offers two payment options: a) pay the entire $30K lump sum this year, or b) spread the payments for our share of the loan over the next 30 years.
My question is: will the tax treatment differ depending on whether we choose option a) or b)? It seems that the lump sum payment would need to be capitalized and depreciated over 27.5 years, but the situation with the monthly payments is less clear. My instinct is that the principal should be capitalized, while the interest should be expensed. What confuses me is that the building being rebuilt doesn't affect the value of our property in any way. Thank you in advance.
advance.
