Thursday, March 17, 2016

CAI supports federal legislation to give income tax deduction for association assessments

CAI Government Affairs Blog

"U.S. Representatives Anna G. Eshoo (D-CA) and Mike Thompson (D-CA) introduced a measure that would allow homeowners in community associations who earn $115,000 or less in annual income to deduct up to $5,000 of their association fees and assessments from their federal tax liability. Community Associations Institute (CAI) has expressed support for the bill. The federal legislation will benefit many of the more than 66 million Americans who live in homeowners associations, condominium communities, cooperatives and other planned communities."
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Stay tuned--let's see if this Democrat-sponsored bill goes anywhere in a Republican-dominated, Tea Party-crazed, House of Representatives.

11 comments:

IC_deLight said...

Puhlease. This isn't helpful to homeowners. This is an attempt to further integrate involuntary membership housing into "they system". There is no dispute that a "double tax" is occurring. However, the solution isn't to complicate tax law by providing for a deduction for those who qualify but rather to eliminate the double tax. History shows that when you try to provide "relief" for homeowners, the gain largely gets captured by industry groups. In this case, HOA managers are looking for more money from HOAs and will be encouraging and advising the HOAs to "raise assessments" under the theory that the "after tax" amounts after the increase are the same or less than the old before tax amounts. This isn't doing homeowners any favors as evidenced by the fact that CAI is promoting this. CAI doesn't represent the interests of its prey.

robert @ colorado hoa . com said...

1. This does absolutely nothing to empower a home owner against an H.O.A. corporation.

2. This does absolutely nothing to reduce an H.O.A. corproation's power over a home owner.

3. I.C. is absolutely correct that the end result will be increased assessments. While it would be revenue neutral for the home owner, it would mean increased profits for the H.O.A. industry. And those profits would be subsidized by the tax deduction.

4. So I wouldn't be surprised at all if the Republican Party supports this.

5. I guess the one good thing that has come out of this is that Tom Skiba has admitted, on the record, that H.O.A. assessments are a form of double-taxation. But I.C. is correct (as usual); the solution isn't to complicate the tax code and subsidize Tom Skiba's minions, but to eliminate the double-taxation.

6. I expect at least one blogger to point to this as a sign that "We Are Winning the H.O.A. Wars!".

robert @ colorado hoa . com said...

Speaking of double-taxation...

Using rough back-of-the-envelope style calculations, I figure that every H.O.A.-burdened household is paying an extra $2,000 per year in privatized "taxes" to subsidize 4 non-H.O.A. households, or an extra $500 per year for every non-H.O.A. household.

"To raise revenue for goods and services, HOAs lack taxing authority but not the power to charge assessments, which makes their inability to tax more a legal distinction than a real constraint. HOAs’ enforcement powers for failure to pay assessments equal those of local governments and allow them to place liens or foreclose on property, a power that the courts have upheld repeatedly." (Barbara Coyle McCabe. "Homeowners Associations as Private Governments: What We Know, What We Don't Know, and Why It Matters". 2011. PDF. Emphasis added).

Two years ago, the Illinois Supreme Court ruled that a condominium owner's obligation to pay assessments is statutory (like taxes) and not contractual ("Illinois Supreme Court: Contract? What contract?". September 17, 2014). Just Americans cannot withhold paying taxes to protest whatever, home owners do not have the right to withhold paying assessments to an H.O.A. corporation for non-performance of contractual obligations -- and not just in Illinois. For example, Colorado State Senator Morgan Carroll's (Democrat) HOA web page states that "You do NOT have the legal right to withhold dues, even if your HOA is out of compliance in other areas or not living up to their end".

And the libertarian position that the existence of H.O.A. corporations is the result of consumer demand seems to be failing. Even the Cato Institute has gone from

"These organizations were practically unheard of in 1960, but today some 54.6 million people in the United States live in various neighborhood associations. That figure continues to rise each year because a majority of new housing units in rapidly growing urban areas are privately governed ... Homeowners associations (HOAs) would seem to have passed the market test" ("What Are Private Governments Worth". 2005. Emphasis added. PDF).

to arguing that

"because they increase the tax base, local governments are increasingly requiring developers to structure developments as community associations" ("Community Associations Have Property Rights Too" July 15, 2013. Emphasis in original. Via this blog here )

and that

"Community associations offer such benefits to local governments that developers are increasingly required to structure proposed housing developments as community associations as a condition of approval" (Cato Institute. Mariner’s Cove Townhomes Association v. United States. July 15, 2013. PDF. Emphasis in original).

Which is why the libertarian Cato Institute was arguing to the U.S. Supreme Court that since H.O.A. corporations have the right to collect assessments from unit owners, taxpayers should be required to pay the assessments for the units that were destroyed as a result of Hurricane Katrina.

Deborah Goonan said...

First of all, if you read the bill, you find out that while regular assessments would be tax deductibe - to those who itemize their tax returns - special assessments would NOT be. Wonder why this is? I think IC_deLight hit the nail on the head.

As some others have pointed out on several different venues, a federal income tax break will not help seniors and owners with lower incomes, because they won't itemize. Others have said - and I agree - that if a tax break is given at all, it needs to be a reduction on property tax bills, not a reduction in federal taxes. After all, the double taxation exists at the local level, for locally provided services.

But it's also fundamentally unfair to non-HOA homeowners, because HOA Assessment and Condo/Co-op Assessments tend to include things like utility payements, private pools, movie viewing rooms, private lakes, parks, etc. Why can't a non-HOA homeowner deduct a private fitness club or tennis club membership, or the backyard pool, or the water or cable TV bills?

Chances are, this bill will go nowhere, and this is just a PR stunt by CAI.

Citizens for Constitutional Local Government said...

Sorry guys, but the real winners would be tax preparers. I’m still trying to figure out what I could deduct as specified by the proposed calculation in the bill, excerpted below. Any CPAs out there????
Plug in some numbers like $12,000 or $1,200 in assessments, and $75, 000 or $150,000 income. What do you get? Help!
--------------------------
SEC. 2. Deduction of homeowners association assessments.
(a) In general.—Part VII of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is amended by redesignating section 224 as section 225 and by inserting after section 223 the following new section:

“SEC. 224. Homeowners association assessments.
“(a) In general.—In the case of an individual, there shall be allowed as a deduction an amount equal to the qualified homeowners association assessments paid by the taxpayer during the taxable year.

“(b) Limitations.—
“ (1) DOLLAR LIMITATION.—Except as provided in paragraph (2), the deduction allowed by subsection (a) for the taxable year shall not exceed $5,000.

“(2) LIMITATION BASED ON MODIFIED ADJUSTED GROSS INCOME.—
“(A) IN GENERAL.—The amount which would (but for this paragraph) be allowable as a deduction under this section shall be reduced (but not below zero) by the amount determined under subparagraph (B).
“(B) AMOUNT OF REDUCTION.—The amount determined under this subparagraph is the amount which bears the same ratio to the amount which would be so taken into account as—
“(i) the excess of—
“(I) the taxpayer’s modified adjusted gross income for such taxable year, over
“(II) $100,000 ($150,000 in the case of a joint return), bears to
“(ii) $15,000.

Tom Skiba said...

Well Evan I certainly do find this entertaining, if not terribly enlightening. Perhaps a couple of facts will clarify this issue, but I am not holding my breath.

First, CAI did not write this bill. It was proposed by two members of the CA delegation who then asked what we thought. Obviously anything that can reduce the double-taxation burden on owners is desirable and we will support it. In fact, CAI has been involved with trying to address the inequity of the double taxation issue for more than 25 years. Our public policy on this issue was originally written in 1988 and has been updated numerous times since. Everyone can read it here: https://www.caionline.org/Advocacy/PublicPolicies/Pages/Local-Taxtation-and-Public-Services-for-Community-Associations.aspx

Second, any deduction would obviously only be for those services that duplicate services provided by local government to other non-community residents, for example trash removal. That's why it would not be a 100% credit and why taxpayers would not receive a credit for maintenance of community amenities, repairs to private property, and other similar expenses

Third, yes it would be better if this were dealt with at the local level and not via federal taxes, but that ignores the primary reason that associations exist today as noted by one of the commenters above....local governments require association construction because it allows then to push the costs of infrastructure, maintenance, and other items off to a developer and ultimately the community association while still collecting 100% of the property tax. It is highly unlikely that governments will agree to have their financial statements blown up by giving up the revenue and/or taking on the expense at this stage of the evolution of the industry. In addition, it is much more likely to happen if only one bill has to pass rather than fighting this in thousands of local governments all across the country.

Finally, like any other bill in Washington, this may go somewhere or it may not. Lots of bills are introduced and never even get a committee hearing, much less a floor vote. We will have to wait and see just like everyone else.

There are more than 65 million Americans living in hundreds of thousands of associations. Wishing them away will not make it so. Finding a way for them to have greater equity in taxation is a goal that I think we should all be able to agree on.

Cheers
Tom



Deborah Goonan said...

Hello, Tom Skiba!

Nice to hear from you. Allow me to provide readers with some clarification as to what the bill actually says, as written. Here's a link to the bill text : http://eshoo.house.gov/wp-content/uploads/2016/03/03.03.16-HOME-Act-Bill-Text.pdf

Here's a few relevant excerpts:
SEC. 224. HOMEOWNERS ASSOCIATION ASSESSMENTS.
4 ‘‘(a) IN GENERAL.—In the case of an individual,
5 there shall be allowed as a deduction an amount equal to
6 the qualified homeowners association assessments paid by
7 the taxpayer during the taxable year.

The bill defines a qualified assessment as follows:
(1) IN GENERAL.—The term ‘qualified home- owners association assessments’ means regularly oc- curring, mandatory financial assessments (other than a special assessment)—
‘‘(A) paid by a taxpayer to a homeowners association with respect to the taxpayer’s prin- cipal residence (within the meaning of section 121),
‘‘(B) that directly benefit the taxpayer’s principal residence, and
‘‘(C) the obligation of which to pay arises from the taxpayer’s mandatory and automatic membership in such homeowners association.

So...
How shall we interpret which part of asssessments "directly benefit the taxpayer's principal residence?"

The terminology is, I believe, intentionally vague. One can easily argue that an 18-hole golf course, or a pool complete with a spa and cabana, or a community lake with boat slips all "directly benefit the taxpayer's principal residence." The loophole this creates is large, but the even larger caveat is that the tax deduction will not apply to a special assessment.

One can easily argue that many special assessments are authorized by an Association's board (often without a vote of membership) to cover the cost of essential services such as a roof replacement, balcony repairs, private road or bridge or dam repairs, are costly but necessary expenses. Don't those costs "directly benefit the taxpayer's principal residence, too?"

As written, the bill defies logic and common sense.

I have posted the same topic on my blog and several social media forums. The comments run the gamut, but most are not favorable. One reader pointed out that this bill will not benefit senior citizens on fixed incomes, who do not itemize their tax returns. Several have pointed out that the tax break, if any, ought to come from the local government in the form of reduced property taxes.

Tom, your point about the fact that local governments will not easily give up tax revenue is duly noted. So let's just have the local take over those essential services homeowners in CIDs are already paying for TWICE. Might this lead to a property tax increase? Undoubtedly. But it must also result in a significant reduction in CID assessments, and greatly reduce the possibility of unpredictable special assessments in CIDs. And shifting costs for public works back to the public realm - where they belong - will in many cases create economies of scale, reduce the costs of common area insurance coverage for CIDs homeowners, and put paid professionals in charge of public administration.

If we're going to play a cost-shifting shell game, let's at least shift the cost and the responsibilty of services where they both belong.

Deborah Goonan said...

Oh, and one final point. Don't be so smug about the growing public discourse about stopping the growth of the CID industry. Public opinion is changing. The US is in the midst of political unrest that I believe will rival what we witnessed during the Civil Rights movement at the dawn of the establishment of CAI.

Our railroad and coal mining industries were once wealthy and dominant forces, But both of them eventually became irrelevant because the public recongnized there were more convenient, more economical, less polluting, less hazardous employment alternatives. At the same time, the railroad moguls failed to recognize they were in the transportation industry, and the coal mining barons failed to recognize they were in the business of energy production.

The US, and indeed the world, is constantly in the process of reinventing itself. The time for restoring and reinventing residential housing has come, the time for revitaliing local governance and civic responsibility has arrived. Either join the movement toward creating accountable local governance or get out of the way.

robert @ colorado hoa . com said...

Deborah Goonan wrote: “Don't be so smug about the growing public discourse about stopping the growth of the CID industry. Public opinion is changing…the railroad moguls failed to recognize they were in the transportation industry, and the coal mining barons failed to recognize they were in the business of energy production. ”

C.A.I. is well aware of what industry they are in — influencing policy so that their sociopathic members can exercise unchecked power over and extort as much money as possible from home owners by creating junk fees and endless debt. And they are extremely effective at it.

When I first got involved in this issue about 7 years ago, I believed that we were on the verge of a “preference cascade” regarding H.O.A. corporations:

This illustrates, in a mild way, the reason why totalitarian regimes collapse so suddenly…Such regimes have little legitimacy, but they spend a lot of effort making sure that citizens don't realize the extent to which their fellow-citizens dislike the regime. If the secret police and the censors are doing their job, 99% of the populace can hate the regime and be ready to revolt against it - but no revolt will occur because no one realizes that everyone else feels the same way. This works until something breaks the spell, and the discontented realize that their feelings are widely shared, at which point the collapse of the regime may seem very sudden to outside observers - or even to the citizens themselves. Claims after the fact that many people who seemed like loyal apparatchiks really loathed the regime are often self-serving, of course. But they're also often true: Even if one loathes the regime, few people have the force of will to stage one-man revolutions, and when preferences are sufficiently falsified, each dissident may feel that he or she is the only one, or at least part of a minority too small to make any difference.” (Glenn Reynolds. “Patriotism and Preferences”. March 13, 2002).

However, I was wrong. I would even argue that the H.O.A. industry has emerged from the Great Recession and housing market collapse more powerful than before, while the individual home owners are worse off. Even Professor McKenzie no longer stands by his prediction from 5 years ago that H.O.A. corporations are “On the Way Out” (and seems irate towards anyone who suggests that they are or should be):

“Evan McKenzie, a political science professor at the University of Illinois at Chicago, argues in a new book that homeowners associations inherently infringe on people's rights, and that their time is limited…McKenzie's larger point is that once consumers gain some leverage against homeowner groups, these associations will begin to lose power and eventually fade away. ‘We are all increasingly reliant on it, but there are serious problems with the viability of these residential private governments,’ McKenzie says. What's left unsaid is what kind of homeowner entity will take the place of homeowner associations if they do go the way of the dodo.” (via this blog on June 21, 2011)

I hate to break the news to you, but there is no “movement toward creating accountable local governance”. If you really believe that “The time for restoring and reinventing residential housing has come, the time for revitalizing local governance and civic responsibility has arrived”, then please name at least one prominent and/or influential person in the policy or public-opinion arena who is working to make this happen. Otherwise, we should just admit defeat.

Deborah Goonan said...

Robert @ coloardo hoa.com, it does not help the cause to be such a negative downer, to take the attitude of a defeatist.

The point is that the emergence of prominent and influential leaders almost always follows growing discontent or changes in attitudes at the grass roots level. Each individual living in the US has the opportunty to exert influence and leadership in their own way, no matter how small. But their collective voices will be heard.

No social change or political revolution has happened over night. Many evolve over one or more decades. And progress is not always linear, nor is it easy. Look back at how long it took women to gain the right to vote in the US. The Civll Rights movement of the late 1960s and early 1970s did not happen all at once, and was preceded by gradual shifts in public attitudes and values. Equality for women in this country is an ongoing issue, but we've come a long way since 1970. Pick any other issue: Labor Rights, rights of our senior citizens and the elderly, rights for children, etc.

Because these are difficult issues, should we all throw up our hands in defeat?

Our rights are worth fighting for -- and our porperty rights and individual rights are inextricably connected. The public is starting to wake up to that fact, and even main stream media is beginning to cover HOA and related issues. In fact, growing disconcent is at the heart of our chaotic presidential election this year. It's getting ugly. Unfortunately, ugliness and social conflict is an inevitable part of creating change. And it's up to those of us who care to make sure that change is for the better and not the worse.


robert @ colorado hoa . com said...

Deborah Goonan wrote that "it does not help the cause to be such a negative downer, to take the attitude of a defeatist".

Nor does it help the cause -- and I still have no idea what that cause actually is -- to engage in self-deception. See my comments in response to the previous blog post, "Thoughts On Micropolitics And Macropolitics", especially the lessons H.O.A. activists (whoever they are) have failed to learn from environmental activists.

If you want a picture of the future, imagine a privatized boot stomping on a home owner's face -- forever.