Rental Property Cost Basis - HOA Mandatory Social Membership fees

[Scap]

I purchased rental property in a gated community and recently sold it.  HOA dues PLUS social membership country club fees are mandatory for homeowners.  At closing, I was charged $2,500 for the social membership initiation fee.  I did not have the option to decline membership.  Can I add this expense that I paid at closing when I purchased the rental property to the cost basis?   If not, could it be a deductible business expense since it was a mandatory expense to own the home?  I think I know the answer but asking anyway.  

[ColeenD3 · Accepted solution]

Since the fee was on a closing document, it is not a rental expense. HOA fees are usually paid monthly and would be a rental expense, as long as the property was business use. 

It's odd that they charged you the other fee at closing and not prorated throughout the year. It would have been a legitimate rental expense like the HOA was since you needed to pay it to produce the income. 

Unfortunately, seller closing costs do not include HOA or social fees.

Seller closing costs are made up of several expenses. Here’s a quick breakdown of potential costs and fees:

• Agent commission
• Transfer tax
• Title insurance
• Escrow and closing fees
• Prorated property taxes
• Credits toward closing costs
• Attorney’s fees

 

[Scap]

Thank you....just as I thought.  

[RiversCPA]

It being on a closing document doesn't mean it is not a rental expense. That is not an exhaustive list of closing costs, just examples of them. It is one of 3 things, a deductible HOA expense, part of the cost basis, or non-deductible social club dues.

In this case I would have added it to the cost basis of the property, given it was mandatory and of no benefit to yourself. This charge is also more traditionally called an initiation fee, which is how I'd argue it to an agent or the court.