A new proposal in Congress would allow members of a HOA to deduct their association fees from their federal taxes:
Upward of 67 million people live in these communities — ranging from sprawling master-planned subdivisions down to individual condominium or cooperative developments. As of 2014, they contained nearly 27 million housing units. Their homeowners associations often provide the functional equivalents of municipal and county services, and residents nationwide pay roughly $70 billion a year in regular assessments to fund road paving and maintenance, snow removal, trash collection, storm water management, maintenance of recreational and park facilities, and much more.
The same residents also pay local property taxes to municipal, county or state governments. But unlike other homeowners, only their local property tax levies are deductible on federal tax filings. Their community association assessments that pay for government-type services are not.
Now a bipartisan group of congressional representatives thinks that’s inequitable and needs to be corrected. Under a new bill known as the HOME Act (H.R. 4696), millions of people who live in communities run by associations would get the right to deduct up to $5,000 a year of assessments on federal tax filings, with some important limitations…
The bill’s primary author is Rep. Anna G. Eshoo, D-Calif. Co-sponsors include Reps. Mike Thompson, D-Calif., and Barbara Comstock, R-Va.. Though the bill has little chance of moving through the House or Senate during this election year, it sends a message to the legislative committees now working on possible tax code changes for next year: Congress needs to acknowledge the role the country’s community associations play in providing municipal-type services. The way to do it is to allow deductions on a capped amount of the money residents are required to pay to support community services.
It will be fascinating to see what sort of formula is used to calculate these deductions as the fees paid to associations do not cover all sorts of municipal services used outside of the association.
At the same time, won’t this promote more HOAs, or at least make them more attractive? And do we really want more? They certainly are popular but they continue a trend that is not necessarily good for society: privatizing municipal goods and helping neighbors guarantee their property values. For the first, instead of paying a municipal government, a new layer of private government is enabled to take care of certain services. Americans tend not to like more and more layers of fees and government. However, this might be outweighed by the second factor: the HOAs help keep the neighbors in line without owners directly having to interact with other neighbors. Instead of possibly having to live next to the neighbor who paints their house purple and starts a garden in the front yard, the HOA polices this. In other words, this tax break might help more and more Americans work out civic life through private associations that they see as a necessary evil.
Given all of the HOAs, is there any analysis that shows they pay off financially in the long run either for the property owners or the municipalities?