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Are condos a good investment?

Condominiums have held their value as an investment despite economic downturns.  In fact, condos have appreciated more in the past few years than when they first came on the scene in the late 1970s and early 1980s, experts say.  Meanwhile, changing demographics are making condominiums more attractive investments for single homebuyers, empty nesters and first-time buyers in expensive markets.

Rules and regulations of Home Associations

Typical covenants, codes and restrictions (CC&Rs), which govern condo associations give the board authority to make and enforce reasonable rules for the use of common property but that would not apply to interior spaces. The 1990 Americans with Disabilities Act does not require strictly residential apartments and single-family homes to be made accessible. But all new construction of public accommodations or commercial projects (such as a government building or a shopping mall) must be accessible. New multi-family construction also falls into this category.In all states, the Federal Fair Housing Act provides protection against discrimination for people with physical or mental disabilities. Discrimination includes the refusal to make reasonable modifications to buildings that aren't accessible to the disabled.

What fees can I expect to pay a home association?

Condominium owners pay a fee, usually monthly, to the homeowners association to cover the costs of managing and maintaining all common areas. In addition, you may pay extra assessments for major maintenance projects. In general, these must be voted on by the association board or in some cases by all of the owners. The particular cost of monthly fees and the rules regarding special assessments vary from association to association. When considering a condominium, it’s a good idea to thoroughly research the fees and bylaws of the particular condo association.

Are homeowner association fees tax deductible?

Homeowner association fees are considered personal living expenses and are not tax-deductible. If, however, an association has a special assessment to make one or more capital improvements, condo owners may be able to add the expense to their cost basis. (Cost basis is a term for the money an owner spends for permanent improvements throughout their time in the home and is used to reduce eventual capital gains taxes when the property is sold.) For example, if the association puts a new roof on a building, the expense could be considered part of a condo owner's cost basis only if they lived directly underneath it. Overall improvements to common areas, such as the installation of a swimming pool, need to be considered on a case-by-case basis but most can be included in the cost basis of any owner who can show their home directly benefits from the work.

To find out more about how the IRS views condo association fees, look to IRS Publication 17, "Your Federal Income Tax," which includes a section on condos. Order a free copy by calling (800) TAX-FORM.  

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