If the rental property you own is a condo, the rules for what you can deduct are similar to a stand-alone house, but the types of expenses and the calculation of what to depreciate may be a little different. The defining characteristic of a condo is that you own a portion of a real estate property that is shared with other owners. It might be a building similar to an apartment building, attached structures like townhouses, or separate buildings on a shared plot of land. Most of the relevant information is covered in IRS publication 527.
Calculating the Improvement Value for Depreciation
When you own a condo, you generally also own a portion of the land that it sits on. You need to know the value of the “improvement” (the building structures) compared to the land. The land can’t be depreciated; only the improvement value can. So that means you can deduct the cost of the building over time as an expense against your rental income, but not the land. See our article on depreciation for more information about that.
Deducting Condo Expenses
Expenses related to the ownership of the condo are generally deductible while it’s a rental. This includes things like HOA fees, facility fees, resort fees, landscape maintenance, and assessments for repair projects (more on assessments below).
Special Assessments
Special assessments, or fees charged to condo owners for work done on the condo, may be either deductible as a regular expense, or depreciated over time depending on the nature of the assessment. Generally, if the assessment is for regular repair or maintenance to uphold the property, you can deduct it as a regular expense on your Schedule E (or schedule C) for the rental property.
However, if the assessment is for a project that improves the property, that is generally going to be a depreciable expense. That means you may need to add it to the depreciation schedule on your tax return, and so you only get to subtract a portion of it each year from your rental income. The number of years depends on the type of item, but for a residential rental, major improvements to the building will generally be depreciated over 27.5 years (or 39 years if it is a short term rental). In some cases you may be able to use bonus depreciation, section 179, and other strategies to still be able to deduct the expense in one year rather than depreciating it over many years.
Expenses such as replacing a roof (rather than just repairing a small portion of it), replacing siding, upgrading lighting fixtures, etc., are generally going to be depreciable expenses.
