This has been a source of confusion in past years due to IRS and Accounting practices, of categorizing paint/sealing as a maintenance expense. In more recent years the reserve study industry has taken a position of including painting/sealing as a reserve component as it passes National Reserve Study Standards’ (NRSS) 4 Part Test and is a large expense that will typically take years of adequate budgeting for.
National Reserve Study Standards
Paint & Sealing of the exterior of the building meets all of the 4 part test outlined in NRSS. In the Pacific Northwest the typical paint cycle of wood siding is every 5 years, the cost is significant and most governing documents for condominium communities note that the Association is responsible for the exterior of the building. Since the industry utilizes these standards for comprehensive and standardized reports (similar across the country and between reserve study companies) reserve study companies have included paint projects in the reserve study.
1. Is the component a responsibility of the Association (review governing documents)?
2. Does the component have a predictable useful life?
3. Does the component have a predictable remaining useful life?
4. Is the cost above a minimum threshold set by the Client?
IRS & Accounting Methods
It’s important to remember that a reserve study is completely different from accounting/tax liability calculations and the two have very different methodologies & goals in mind. Accounting methods are geared toward determining tax liability and not the actual long term projected expenses for an Association. Accounting has its place for sure but unless the accounting firm has created a separate reserve study and has knowledge of building systems, useful lives and construction costs there will likely be an issue with having a reliable document to utilize for the long term budget projections.
It has been our experience that exterior paint projects can be categorized by accounting firms to reflect this project cost as a reserve through one of several methods they should be familiar with.
Additional Resources: Component & Financial Analysis Slideshare