In many respects the privatization of the American neighborhood is not much different from other public functions that have been transformed into privatized industry for the purpose of generating profits verses having local, state or the federal government provide these same services as part of the “social contract” with the American people.
And make no mistake about it, the privatization of America’s residential landscape has been motivated first and foremost by the desire to reap profits; either from the management and servicing of these privately controlled neighborhoods or by the desire of municipal governments to reduce the financial burden of having to service these communities, were they to remain part of the public infrastructure or “commons.”
At the present time there is a bill before the House Ways and Means Committee (H.R. 4696) that would grant certain HOA members a tax deduction of up to $5,000 for the assessments they pay to their homeowners association.
In order to qualify for the deduction the taxpayer’s household income must be no more than $100,000 in the case of a single taxpayer or $115,000 in the case of a joint return.
What is most interesting about this bill, other than the fact that it represents a grossly unfair tax benefit for the people who do qualify for the deduction, (which we will discuss in another post) is that what the bill is in effect proposing is that taxpayers who do not own homes in HOAs be required to subsidize the cost of owning a home for those taxpayers who choose to live within a privatized community.
Now follow along closely here…a privatized residential development that is being subsidized with public funds in the form of a tax deduction, which in effect, shifts the burden for some portion of the federal income taxes that would otherwise be paid by HOA members, to the rest of the population. who do not own a home in an HOA.
In it’s simplest form what this line of reasoning argues is that those taxpayers who are not members of an HOA should subsidize those taxpayers who are, by granting them a tax deduction that the rest of us do not receive!
What’s more, the deduction is not classified as a “miscellaneous itemized deduction” under the Internal Revenue Code, which means that the taxpayer seeking to take advantage of this deduction does not have to itemize their deductions in order to take the deduction.
In effect, it is the equivalent of increasing the standard deduction only for taxpayers who pay assessments to an HOA, by the amount they pay in “qualifying” HOA assessments; up to the proposed limit of $5,000.
If you are not quick with the ciphers and perhaps need a little help to grasp the magnitude of what this means to all of us taxpayers who are not members of an HOA, but are otherwise saddled with the same obstreperous tax burden as a member of an HOA, here’s a simple breakdown of the math:
If a taxpayer files a joint return and earns no more than $115,000; is a member of an HOA and they pay $5,000 or more in qualifying HOA assessments in any one calendar year, they will receive a tax deduction of $5,000. This deduction is taken on their tax return in the same manner as the standard deduction and the personal exemption. In other words, right off the top. You will not need to itemize your deductions to receive this tax benefit!
If this same taxpayer is in the 15% tax bracket as far as the federal income taxes they pay, then this $5,000 deduction will save them $750 in federal income taxes.
This $750 in taxes which are not being paid by taxpayers who are members of an HOA must then be paid by the taxpayers who are not members of a homeowners association.
In effect, non-HOA members/taxpayers are now being asked to subsidize the cost of living in a privatized community, for those taxpayers who have chosen to live in one of these communities.
In our next installment we will examine the argument that supporters of H.R. 4696 are using to support the legislation, why those arguments are disingenuous and why they are simply wrong!