Special Assessments on Rental property

[mrsof7]

We were assessed a "special assessment for safety repairs" on our rental property in the amount of $4155.  Am I allowed to claim this as an expense or do I need to depreciate?

[Carl]

Am I correct in assuming your rental property is part of a condo or something similar? If so, then how you treat them depends on "exactly" what the special assessment was for. What you're calling repairs, very well could be property improvements. Each are treated and reported differently. So what precisely was "repaired"? It also matters if the work was done to common areas, or if the work was done to that part of the structure owned by you.

Typically with a condo, what you own is from the sheetrock, in. Everything from the back of the sheetrock and out is owned by the condo association, the cooperative, the management company, or whatever the entity may be that's assessing the costs.

Anyway, confirm that what you have here is a unit within a condominium or something, and clarify please just exactly (or as precisely as you can) what it was the money was used for to repair, fix or improve.

[Carl]

As a followup, yes you can claim it. But where and how you claim it depends on the details requested above.

[mrsof7]

Yes, this is a condo association.  

Repairs included:

 *Building's front and side elevation repairs

*Replacement of decayed balcony/deck engineered floor joists and guard wall framing

*Balcony/deck waterproofing membrane repairs

According to the association, balconies have leaked and are structurally unsafe.  Repairs were necessitated by leaks that caused or allowed unsafe mold to grow and thrive on walls/ceilings, on the framing in the interstitial wall cavities, and on various flooring areas.

[Carl]

In some situations, special assessments can be treated "like a tax". But I would not go that route in your specific situation if any of the work done was directly a part of your unit. (such as the balcony work.) I assume those descriptions are from the entity that assessed the owners. Without seeing for myself exactly what was entailed, this could go either way. But based on what I have and the amount charged, (which is rather low in my opinion) I would classify it as a repair and report it as such using the descriptions provided.

On the other side of that coin, if you want to report it as a property improvement and depreciate it over 27.5 years, you can. If your description breaks down the individual costs and those costs are under $2,500 per item you could still classify each as an asset and take the special depreciation allowance. But even that's a drop in the bucket weather you spread it over 27.5 years to deprecate it completely in the first year with the special depreciation allowance. So I wouldn't go that route.

Make sure you keep all your paperwork just in case you're ever audited on this. I seriously doubt that would ever happen. But in my 30 years as a landlord I've learned to never say never.

[mrsof7]

Thanks for your help.  The total assessment of $900k was split amongst 224 units and varied by square footage.  Our portion was $4155.  None of the repair work was done on our unit.  This is my first time dealing with a special assessment and wasn't sure how to report it for tax purposes.