What is an HOA special assessment? A complete guide

If you live in a residential community or are looking to purchase a home in a homeowners association (HOA), then you’re most likely familiar with the term “HOA fees.” If you’re not, we encourage you to read  our article, “What is an HOA fee, and what do they cover?”

While you know you’re obligated to pay these fees, you may or may not be familiar with special assessments and what they’re all about in the first place.

This article isn’t intended to and doens’t constitute legal advice or create an attorney-client relationship. Board members should consult their association’s attorney to discuss the legal implications of their decisions or actions prior to proceeding.
 

What is an HOA special assessment?

An HOA special assessment is a one-time fee charged to homeowners by their association. This fee is used to cover unexpected or non-budgeted expenses that are not funded by regular assessments, also known as monthly or quarterly dues.

Although every community is different, HOA special assessments often arise under similar circumstances. These can include:

• Emergency repairs: Storm damage, flooding, or fire may require immediate repairs to common areas such as roofs, pools, or clubhouses.
   
• Major capital projects: Structural reinforcements, plumbing overhauls, or elevator replacements that go beyond routine maintenance.
   
• Reserve fund shortages: If the association's reserve fund is underfunded or hasn't kept pace with inflation, a special assessment may be necessary.
   
• Insurance gaps: Rising premiums or inadequate policy coverage can leave the association financially exposed after a major incident.
   
• Deferred maintenance: Sometimes, repairs postponed over time become urgent and costlier than anticipated.

While many communities work hard to forecast and prevent these situations, unexpected expenses are, by nature, difficult to predict. A well-managed community, especially with guidance from an experienced property management partner like FirstService Residential, can approach HOA special assessments strategically and carefully.
 

What are special assessment taxes?

Special assessment taxes are levied by municipalities or local governments to fund public infrastructure improvements that benefit a specific group of properties. This might include road paving, sewer installation, sidewalk construction, street lighting, or utility upgrades. If your home is in the designated improvement zone, you may see an extra line on your property tax bill labeled as a special assessment. These charges are not governed by your HOA. Instead, they’re collected by the local tax authority and allocated toward civic improvement projects that may add measurable value to specific neighborhoods or developments. In many cases, the assessed amount reflects the proportion of benefit your property receives from the project.

Unlike HOA special assessments — which are decided internally by your community’s board — special assessment taxes are typically approved through public ordinance and include details about the project scope, total cost, and repayment timeline.

If you receive a tax notice with a special assessment line item, and you're uncertain about its origin or purpose, you can:

• Review your property tax statement carefully
   
• Contact your local tax assessor’s office
   
• Ask your property manager for clarification if the charge appears to be HOA-related

Knowing the difference between HOA-imposed special assessments and government-issued special assessment taxes can help homeowners avoid confusion and plan more effectively for both.
 

Capital improvement assessments vs. special assessments

Capital improvement assessments are sometimes mistaken for special assessments but differ slightly in their purpose. Capital improvement assessments focus on enhancing the community areas, which may involve structural changes.

The objective of a capital improvement assessment is to enhance the value of the homes in the development and offer more amenities to residents. Typically, these projects are more expensive, so the HOA must be cautious before implementing them.

Examples of capital improvement projects may include constructing a fitness center, clubhouse, tennis courts, or additional parking lots. These improvements are made to common areas that all unit owners can utilize, and such HOA assessments may help enhance the property values for all community members.

The HOA board typically proposes capital improvement projects and gives property owners the opportunity to discuss the assessment fees. Most governing documents require a community vote before moving forward so that residents have a say in the investment.
 

Are HOA special assessments tax deductible?

Special assessments imposed on members of an HOA are generally not eligible for tax deductions. However, if the unit being assessed is a rental property, then the special assessment may qualify as a tax-deductible expense, depending on individual circumstances and subject to advice from a qualified tax professional.

Suppose a unit owner wants to make the interest on their special assessment deductible. In that case, they may obtain a second mortgage from a bank or financial institution and pay their share of the assessment in full. But involving the HOA to make interest payments tax-deductible for all homeowners is legally and administratively complex and may not be feasible. This would require conducting title searches, recording trust deed loans, placing liens, and more. For most communities, this level of administrative complexity makes it impractical to manage internally.
 

How to deal with special assessments

Imposing an HOA special assessment usually arises due to unexpected failures or issues that have occurred. For instance, the roof of a community building may have been damaged by weather, and insurance coverage may not be adequate. Even the most proficient homeowners associations may be caught off guard by unexpected events.

However, this can also occur with poorly managed HOAs that have failed to budget effectively. That's why partnering with a professional management company is crucial to help determine whether your community’s reserve study and finances are in good standing. Additionally, it is highly recommended that homeowners review their HOA's financial information to verify that the association has adequate reserve funds to handle unexpected events. This can help reduce the likelihood of sudden out-of-pocket costs that strain homeowners’ budgets.
 

Monthly fees and special assessments

While low HOA fees may seem attractive, there are drawbacks, especially regarding special assessments. Lower HOA fees may allow you to qualify for a more significant mortgage, as your lender will factor in your other monthly expenses to determine how much you can afford to pay each month. However, homeowners associations with lower fees may need more funds to handle significant repairs or improvement projects that could increase the value of your home.

On the other hand, it's easy to assume that higher HOA fees will protect you from expensive special assessments, as the association should have sufficient funds to handle repairs and upgrades without requiring homeowners to pay more. However, this is not always the case. Even with higher fees, if the association has not collected sufficient funds from everyone, their financial situation may not be as stable as you might think. Higher HOA fees may still result in an expensive special assessment if the funds are not well-managed.

It’s possible that special assessments may be needed during the lifetime of your community as wear and tear, as well as natural disasters occur. The important part is being involved with the board of directors and fellow residents and helping the community remain financially sound to help reduce its impact on homeowners.

Click here to learn more about how a professional management company like FirstService Residential can support your community.