Capital improvements in New Jersey: What your association should know

What are capital improvements?

Capital improvements are upgrades that increase the value or significantly increase the useful life of real property. For community associations in New Jersey, capital improvements may include things like major replacements, new installations, structural upgrades, or common area projects that go beyond routine repair.
 

Capital improvement examples

Capital improvements in New Jersey community associations may include things like:

• Roof replacement
   
• Facade restoration
   
• Balcony or deck replacement
   
• Elevator modernization
   
• HVAC system installation or major replacement
   
• Boiler or chiller replacement
   
• Paving or full driveway replacement
   
• Pool resurfacing or major pool equipment replacement
   
• Clubhouse renovation
   
• Window or exterior door replacement
   
• Fire alarm or sprinkler system upgrades
   
• Structural repairs or reinforcement
   
• Drainage or stormwater system upgrades
   
• Gate, access-control, or entry system replacement
   
• New common area lighting or electrical upgrades
   
• Retaining wall replacement
   
• Major landscaping or hardscaping tied to a larger capital project

The right classification depends on the scope of work, how the improvement is installed, and whether it increases value or significantly increases useful life.
 

Capital improvement laws and requirements in New Jersey

New Jersey has specific rules for capital improvements, taxes, and reserve planning:

• New Jersey sales tax law generally taxes installation, maintenance, servicing, and repair services, but exempts services that install property that becomes an addition or capital improvement to real property, with certain exceptions (N.J.S.A. 54:32B-3).
   
• A contractor working on an exempt capital improvement must obtain a completed Certificate of Exempt Capital Improvement, Form ST-8, or other approved form, and keep it in their records (N.J.A.C. 18:24-5.7).
   
• Certain services remain taxable even when related to real property, including landscaping services, floor covering installation, and alarm system installation, unless another specific exemption applies (N.J.S.A. 54:32B-3; N.J.A.C. 18:24-5.7).
   
• Associations of planned real estate developments must generally undertake and fund a capital reserve study to assess whether reserves are adequate for the repair or replacement of capital assets the association is obligated to maintain (N.J.S.A. 45:22A-44.2).
   
• The capital reserve study must generally be performed or overseen by a credentialed reserve specialist or a New Jersey-licensed engineer or architect, and conducted and reviewed at least once every five years (N.J.S.A. 45:22A-44.2).
   
• Associations of planned real estate developments with less than $25,000 in total common area capital assets are exempt from the capital reserve study requirement (N.J.S.A. 45:22A-44.2(d)).

Boards should always consult qualified legal counsel before planning a capital improvement to support compliance with New Jersey HOA laws.
 

Are capital improvements exempt from sales tax in NJ?

Certain installation services for qualifying capital improvements in New Jersey may be exempt from New Jersey sales tax. While the exemption applies to qualifying installation services, the contractor generally remains responsible for sales tax on materials it purchases.

If the work qualifies, the contractor should not charge sales tax on the exempt installation work when the property owner provides a completed ST-8 certificate (N.J.S.A. 54:32B-3 and N.J.A.C. 18:24-5.7).
 

What is an ST-8 certificate?

Form ST-8, Certificate of Exempt Capital Improvement, is the New Jersey form a property owner gives to a contractor when the work will result in an exempt capital improvement. The form tells the contractor that sales tax should not be charged on the qualifying installation. For community associations, an ST-8 may be relevant for projects such as major replacements or permanent upgrades.
 

Capital improvements vs. repairs or maintenance

A capital improvement generally adds value, extends useful life, or creates a permanent upgrade to real property. A repair usually restores something to working condition without materially changing the property. For example, replacing an entire roof may be a capital improvement, while patching a small roof leak may be a repair.
 

How to fund capital improvements in NJ associations

1. Use your reserve funds

   You may be able to use your reserve funds for certain capital improvements. However, reserve funds typically have restrictions around what they are used for. Your governing documents should provide clear guidelines on when and where they can be spent.
   
   A current reserve study can help the board confirm whether the project was anticipated, how much has been set aside, and whether using those funds could leave the association short for other upcoming repairs.
    

2. Collect a special assessment

   If your reserves are insufficient to pay for what your community or building needs, this may mean levying a special assessment, an additional HOA fee that helps finance the project's cost.
   
   While a special assessment allows the community to avoid taking on debt, it is also the least popular option among homeowners. Large, unexpected assessments can create hardship for residents, who may challenge the decision or file a lawsuit against the community for neglecting its fiduciary responsibilities.
   
   Before imposing a one-time special assessment on your community, check your governing documents and consult with your legal counsel to support compliance with New Jersey HOA laws.
    

3. Association loans

   An association loan can spread the cost of a major project over several years, which may be more manageable than a large one-time assessment. For communities managed by FirstService Residential, our affiliate company FirstService Financial can help explore financing options and support the application process.

What boards should review before approving a project

Before approving capital improvements in New Jersey, boards should review the governing documents, reserve study, budget, project scope, contractor proposals, insurance implications, and possible sales tax treatment.

Boards should also confirm whether owner approval is required. Some projects may fall within the board’s maintenance and replacement authority, while others may be treated as an addition, alteration, or improvement that requires a different process under the governing documents.
 

Common mistakes to avoid

Capital improvements in New Jersey can involve many moving parts, so a few common missteps are worth watching for before a project begins:

• Waiting until something fails: A project is harder to manage when the board is forced to act in an emergency. Review major components before they reach the end of their useful life, then build time into the schedule for planning, bids, owner communication, and approvals.
   
• Using outdated reserve information: Older reserve studies may not reflect current pricing or property conditions. Review the study regularly and compare it with what is actually happening on the property so the board can plan with better information.
   
• Approving an unclear project scope: Vague scopes can lead to confusing bids, change orders, and HOA complaints. Before choosing a contractor, make sure the work is clearly described and that the board understands what is included.
   
• Assuming the project is tax-exempt: A large project is not automatically an exempt capital improvement. Confirm the tax treatment before work begins and keep the required documentation, including a completed ST-8 certificate when applicable.
   
• Under-communicating with owners: Owners may support a project more easily when they understand the reason for it. Explain what problem the work solves, how it will be funded, and what residents should expect during the process.

With the right support, boards can make large projects easier to understand and help residents see how the work supports the community’s long-term needs.
 

How FirstService Residential can help

A property management company can help boards organize project records, coordinate bids, track vendor communication, prepare resident updates, review invoices, monitor timelines, and connect the board with qualified professionals.

As North America’s leading property management company, FirstService Residential serves New Jersey boards and owners with local expertise backed by national resources. Our teams offer support with HOA meetings, recordkeeping, financial management, banking and insurance programs, resident communication, and 24/7 customer care teams. This way, board members can focus on long-term goals instead of day-to-day administration.

With more than 25 years of experience in New Jersey, we help HOAs, condo associations, high-rises, and master-planned communities operate smoothly and meet their goals with confidence. To learn how we can support your association, contact our New Jersey team today.

This information is provided for general informational purposes only and is not intended to constitute, and should not be relied upon as, legal, regulatory, financial, or operational advice, or as a representation or guarantee of any specific services, capabilities, or outcomes. Property management needs, regulatory requirements, market conditions, and available services vary by jurisdiction, property type, and community. FirstService Residential provides services through locally based affiliates and associates, and services and results may vary by community, region, contractual terms, and applicable law.