Mandatory assessments may become a federal income tax deduction for homeowners
The “Helping Our Middle-Income Earners Act” or “HOME Act” is new federal legislation that is currently pending in the House of Representatives. The bill is being reviewed and considered by the House Committee on Ways and Means. The purpose of the HOME Act is to attempt to lighten the financial tax burden on middle income Americans who live in community associations. The Act aims to amend the Internal Revenue Code to allow property owners in community associations to use their assessments as a deduction on their taxes.
The HOME Act provides for an income based tax deduction, up to $5,000, for any qualified assessments paid during the taxable year. The amount claimed as a deduction must actually be paid by the homeowner in order for them to deduct it on their taxes. If the homeowner does not pay the assessment or only makes a partial payment, the amount actually received by the association will be all the homeowner will be permitted to deduct.
Homeowners will not be able to deduct every assessment imposed by the association, the assessments that are deductible must be a qualified assessment. A “qualified assessment” is defined as regularly occurring mandatory assessments that are (1) paid to the association for the taxpayers principal residence, (2) that directly benefit such residence, and (3) that arise from the mandatory and automatic membership in the association. Specifically excluded are any amounts for special assessments. This also means that any payments for costs of collection or attorney’s fees will also not be deductible by the taxpayer.
In the event this Bill is enacted, Owners will be required to provide a taxpayer Identification number to the association under the terms of this new Bill. The association then, will be required to file an informational return providing the name, address and taxpayer identification number of taxpayers from whom the association receives assessments and the amount of the assessments actually paid. The Association will also be required to provide the Owner a written statement showing the name, address and phone number of the contact person on behalf of the association, and the statement must contain the Owners name, address, and tax identification number along with the amount of assessment payments received by the association for the tax year. This statement must be provided to the taxpayer owner by January 31 for the prior calendar year.
The HOME Act was sponsored by Representative Anna Eshoo (D-CA-18) and co-sponsored by Representative Mike Thompson (D-CA-5) at its introduction to the House of Representatives on March 3, 2016. As of April 14, 2016, the Bill became co-sponsored by Representative Barbara Comstock (R-VA-10), thereby giving the bill bi-partisan support.
Updates on this legislation will be provided as it moves through the legislative process.