Technical Question about adjusted house basis

[haha]

I have a condo which now is my residence, but for various reasons I want to keep an accurate basis. We are doing a large building improvement, and it will be financed partly by an assessment and also by a draw-down of our reserve fund. Whatever the project costs, I will be responsible for my ownership (%) * the project cost, no matter whether it is paid by reserves draw-down or assessment. I may even borrow by mortgaging my unit, though I likely would not. None of the work is just repair and maintenance, it is all capital improvements.

So if the project costs $2mm, and my ownership factor is 1%, my cost should be paid and recorded as .01*2,000,000=$20,000.

Any comments or corrections?

Thanks, Ha

 

[Bamaman]

You could probably get away with counting your total "improvements" and cost of reselling the property. However I was thinking it was cash paid out of pocket for improvements--exclusive of borrowed money.

You should be able to find the answer on the IRS.gov websites on the subject. They have simple formulas for everything--including the "basis" on any asset.

 

[Onward]

This is an interesting tax issue because you won't be paying for the improvements directly. You'll be paying a condo assessment. Can condo assessments, when used for improvements, be used to increase your basis in a unit? I would do some digging and find some precedent before I answered yes to that.

 

[Blue Collar Guy]

I have a condo which now is my residence, but for various reasons I want to keep an accurate basis. We are doing a large building improvement, and it will be financed partly by an assessment and also by a draw-down of our reserve fund. Whatever the project costs, I will be responsible for my ownership (%) * the project cost, no matter whether it is paid by reserves draw-down or assessment. I may even borrow by mortgaging my unit, though I likely would not. None of the work is just repair and maintenance, it is all capital improvements.

So if the project costs $2mm, and my ownership factor is 1%, my cost should be paid and recorded as .01*2,000,000=$20,000.

Any comments or corrections?

Thanks, Ha

I found this, IDK if he is right, but he agrees with you Tax Issues When Selling a Condo, Townhouse, or Other Property in a Homeowners' Association | Nolo.com This guy does too http://query.nytimes.com/gst/fullpage.html?res=9D03E2D81630F932A35753C1A9609C8B63

 

[Texas Proud]

I found this, IDK if he is right, but he agrees with you Tax Issues When Selling a Condo, Townhouse, or Other Property in a Homeowners' Association | Nolo.com This guy does too Q and A - Assessments Can Affect the Tax Basis - Question - NYTimes.com

I think the second link is correct... there has to be specific accounting from the condo association or you do not know what is 'yours'....

From the article...

that under I.R.S. regulations affirmed in numerous court decisions, the board must pass a resolution and notify unit owners that the funds being raised will be used for capital improvements only and not for operating expenses or ordinary repairs.
​

And look at the last few words... ordinary repairs...

It was years ago when I was doing taxes, but if it were not rental then a new roof did not add to the basis... it was a repair... same as replacing the HVAC system.... now, if you put in an HVAC system when there was not one before it is an increase...

 

[pb4uski]

IME capital improvements made by associations are usually done via a special assessment that the condo owner would pay and would become a part of basis as if the condo owner directly paid for the capital improvement. DD's association did this when they installed new windows.

OTOH, sometimes associations develop surplus over time as monthly/quarterly maintenance fees exceed operating costs and the surplus is later used to fund capital improvements in lieu of a special assessment. Alternatively, the association may develop excess reserves for replacements and divert some of that money to captial improvements. Whether this would be included in basis is more of a question mark...it should in theory. I wonder that if the association board declared a special assessment of $100 for capital improvements, recharacterized past assessments of $20 as applying to the special assessment (in essence declaring a refund of $20 of past operating or replacement assessments) and billed the owners only $80 if owners could then claim an increase in basis of $100 even if they only write out a check for $80.

 

[MichaelB]

The NOLO link provided earlier clearly supports a cost basis adjustment the way HaHa describes it - his ownership percentage of the total project cost. All he needs is an HOA statement documenting those two numbers.

In our experience special assessments only account for some of the cost of an improvement project. The rest comes from the reserve funds, which are replenished from the monthly fee, and the monthly fee can't be used to claim a cost basis adjustment. So, the assessments are not enough documentation to support the entire cost basis that the unit incurs.

 

[haha]

Thanks for all the comments and suggestions. i will talk to our HOA board, and see if I can sell them on the idea to state the purpose of the assessment as clearly as possible. We are going with Hardi-Plank, which has become very popular around here as a replacement or substitute for stucco.

It sometimes surprises me how little heed many people seem to give to things can cannot cost any more, and may help as time goes by. I was once on our HOA board, and I found it immensely annoying because of this.

Ha

 

[pb4uski]

Just curious why you need to track basis so precisely given that the allowance for the tax-free gain on a principal residence is $250,000.

 

[ERD50]

Just curious why you need to track basis so precisely given that the allowance for the tax-free gain on a principal residence is $250,000.

A gain exceeding $250,000 seems like a good reason to track it. And it would be harder to get the info years from now if you find yourself in this position in the future.

Not all that uncommon, as in their infinite wisdom, lawmakers don't factor time into this at all (right, $250K gain in 2 years is treated the same as $250K gain in 30 years?). Same with capital gains, other than the > one year LTCG rate, no adjustment for time.

I also believe this $250K limit is a sequential thing when you sell and buy a new home, it rolls forward (or maybe that was the old laws?). I think I'm in a position where I need to go all the way back to 1977 and my first townhouse purchase, I think they all rolled forward, but I need to check this and clean up my records.

-ERD50

 

[pb4uski]

There is no limit on how many $250,000 exclusions you can get. As long as you meet the principal residence test, you can get as many as you want under the current law.

If you qualify for the exclusion, you may do anything you want with the tax-free proceeds from the sale. You are not required to reinvest the money in another house. But, if you do buy another home, you can qualify for the exclusion again when you sell that house. Indeed, you can use the exclusion any number of times over your lifetime as long as you satisfy the requirements discussed below.
....
Here’s the most important thing you need to know: To qualify for the $250,000/$500,000 home sale exclusion, you must own and occupy the home as your principal residence for at least two years before you sell it. ....

 

[haha]

Just curious why you need to track basis so precisely given that the allowance for the tax-free gain on a principal residence is $250,000.

If you are single and happen to buy on a low in a rapidly improving neighborhood and market amazing things can happen. If I sold today I would not have a taxable gain, but in the near future that would not be far fetched. Like others have mentioned, now is the time to collect and organize my records.

Ha