Homeowners' Associations & Capital Improvements
Capital improvements are a key part of a homeowners' association's duty to maintain quality of life and property value. Your homeowners' association should consider a few issues that are unique to condo improvements, to provide for a smooth and affordable process.
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Obtaining Owners' Approval
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Your condo's legal documents are specific about what qualifies as an improvement and how to obtain approval from owners, if required. Legally, a homeowners' association isn't the property owner, but rather the owners' representative, and needs their approval for improvements.
Financing Improvements
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Homeowners' associations often have more difficulty getting a loan because they don't own the property needed for collateral, although some associations have qualified for lines of credit. States such as New York now allow lenders to secure loans for condos by putting liens on individual owners' common charges. Depending on the improvement's cost and urgency, you may opt to increase common charges to build up a reserve fund and make the improvements in the future. Or you can levy a special assessment on owners in a lump sum or in a period of multiple months.
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Tax Implications of Improvements
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"Capital improvement" is an accounting term for improvements that increase the value of your property and is used to reduce your tax exposure by spreading the cost of an improvement across several tax years. Not all condo improvements are considered capital improvements because a condo has numerous individual owners, so experts recommend consulting with an experienced accountant to determine what qualifies as a capital improvement for tax purposes.
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References
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