Commonly Missed Tax Break
Condominium or cooperative residents often miss the fact that upgrades to the common areas of communities can affect the amount of tax an owner pays when the home is sold.
If the property is a principal residence and the owner has lived in it for two of the previous five years before the sale, a big chunk of the profit is already exempt from federal tax — $250,000 for a single person and $500,000 for a married couple.
But the seller will owe taxes on any profit beyond that, and he will owe taxes on the whole amount if the property isn’t a primary residence.
A proportional share of the amounts spent by the condo or cooperative association on improvements to the property — not simple maintenance — can be added to the amount paid for the property, or in tax lingo, “the basis.” The basis is subtracted from the sales price to determine any taxable profit.
“It surprises me that many community association owners are not aware of this tax benefit. Particularly for older home owners who have watched real estate profit build up over many years and now have a profit of more than $500,000, every dollar of capital improvements they can document is valuable,” says Benny L. Kass, real estate attorney.
Source: The Washington Post, Benny L. Kass (06/21/08)
Of course, I suggest you check with your accountant to determine the tax picture for your specific situation. I recommend contacting Carlos Castro at SmarTax and Accounting, 303-693-5085.