Condo special assessment capitalization. Lump sum or 7-year loan payments - how to file the loan payments?

[bosh]

I have rental condo. HOA wants to replace balcony rails (old wooden replace with new aluminum). They issued special assessment, either as a lump-sum $10,364 or 83-month loan payments $153/mo, starting April 1, 2019. Assuming I have money for any options, what is better choice from tax write off point of view. My personal data. I am in 22% tax range currently. In 3 years I will retire and possibly move into 12% tax range.

I almost certain that $10.364 must be depreciated for 27.5 years. What about loan payments that HOA will add to my monthly HOA fee? Can I add them to HOA fee category within 83 month until loan is paid off? How to deal with monthly payments?

[NCperson]

They are simply HOA payments, whether you pay in lump sum or over 83 months or some number in bereeen in my view ; you don’t own the balcony so there is nothing to depreciate as you can only depreciate what you own

May the payments while you are still in the 22% tax bracket ; in fact if you are cash flow positive pay it all off at once

[bosh]

NCperson,

You are oversimplifying the special assessment. The balcony is a part of the apartment structure and belongs to each apartment. IRS requires any changes in apartment structure taxed as improvement, especially if all balconies in HOA are updated with new aluminum rails from old wooden rails. If HOA simply increased HOA fee and spend extra money on upgrade, I can file it just as HOA fee. That is create a difference between lump sum and monthly payments. If HOA increase HOA fee just adding $153 to it without breaking down this expense into renovation category, I can probably follow your advise.  But I doubt, if it happen. On my question to HOA how they categorize the assessment, they replied - ask your tax advisor.

Thanks for your input.

[NCperson]

well, you are correct.  I should have looked it up before posting as it is considered a 'special situation' by the IRS

https://www.irs.gov/pub/irs-pdf/p527.pdf

see the very top of page 16 in the middle column

You can’t deduct special assessments you
pay to a condominium management corporation
for improvements. However, you may be able to
recover your share of the cost of any improvement by taking depreciation.