Do HOA Back Dues paid in Foreclosure Adjust Cost Basis?

1 Reply

A property purchased at Courthouse foreclosure often come with liens. Delinquent HOA assessment not paid by the foreclosed owner is a common problem that becomes the burden of the new Buyer, who has to settle with the HOA.

Do the (sometimes) excessive HOA back dues increase the Cost Basis of the property that can be written off against ordinary gains or does it expense out (as passive income) on IRS Schedule E? My Accountant is unsure.

Any suggestions in dealing with HOAs that are not willing to discount the back dues owed, even from their failure to prosecute the delinquent prior owner only because their CC&R allows them to claim everything and the kitchen sink?

An advise with annotated references or useful links much appreciated.

@J Sheth

If your accountant is unsure - he needs to research, and you probably need a better accountant. 

That said, all back taxes, back HOA etc. are added to the basis. Once added to the basis, they are depreciated with the rest of the basis. Depreciation is a deduction against passive income (Sch E), and it is never "written off against ordinary gains" (which is not a correct expression either way).

Here is the IRS Publication 527 link.

Dealing with HOA is not my area of expertise, but I suggest to approach them nicely. They have no legal obligation to compromise on the assessed amount, as far as I know. So you have no leverage. Even less so as an investor.

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