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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 4010
Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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Lane, In 1996 we bought a second home (a free standing condo

Resolved Question:

Lane,

In 1996 we bought a second home (a free standing condo on the beach) that we have never rented.

Within a few months after purchase we performed substantial renovations. Since then we have paid special assessments for improvements such as new roofs, new exterior painting. We have also made additional individual improvements such as new decking, exterior staircases, and the additional of windstorm certified storm windows. We are now in the process of paying another special assessment for re-siding the home, new roof, and new decking.

We have never deducted any of the above costs on our income taxes.

If we sell this second home which of the above costs can we add to our basis to reduce our capital gains? For any of these that adjust our basis, will a depreciation schedule reduce the amount that can be used to increase our basis?

Thanks very much for your time.
Submitted: 10 months ago.
Category: Tax
Expert:  Lane replied 10 months ago.

Lane :

Hi,

Lane :

Yes, as these are improvements, and you are using this as a second home, the improvements WILL add to your tax basis for capital gains purposes

Lane :

Homeowner associations were originally established so that condo owners would have the same tax treatment as individual homeowners. Thus homeowner associations are acting as agent for the unit owners. As a result, the unit owners are able to add some or all of the special assessment to their basis (=cost) in their condos, ultimately reducing their gain upon sale of the unit ... WHEN, those assessments are truly improvements and not regular maintenance

Lane :

Further, since this was not a rental, and has never been placed in service as a rental, depreciation is not applicable at all (You were never able to deduct it, and, there's no recapture either, as there can be when the property is used as a rental, and the owners did take - or should have taken - depreciation as a deduction)

Lane :

Make sense?

Lane :

Basically - The deductions a condo owner (where the property is not a rental) can take will be the same that an individual homeowner can take. Mortgage interest and points paid on purchase or refinance are deductible, of course, subject to a series of limitations though. Real estate taxes paid are deductible. The cost of major improvements can be added to the unit's basis for the purpose of reducing gain upon sale. There are tax credits, such as energy credits, that are also available to condo owners. In general, insurance, homeowner dues, utilities and maintenance are not deductible.

Lane :

Hope this helps

Lane :

I still don't see you coming into the chat session, so I'll move us to the "Q&A" mode. … Maybe that will help … (We can still continue a dialogue there, just not in real-time chat, as we can here).

Lane :

If this has helped, I would appreciate a feedback rating of 3 (OK) or better (excellent, is ideal)… That's the only I get credit for the work.


However, again, if you need more on this, please come back here, so you won't be charged for another question

Lane :

Let me know ...

Lane :

Lane

Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 4010
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and 7 other Tax Specialists are ready to help you
Expert:  Lane replied 10 months ago.

 

Hi,

 

... just checking back in HERE, as I ever saw you come into the chat

 

 

Our chat has ended, but you can still continue to ask me questions here until you are satisfied with your answer. Come back to this page to view our conversation and any other new information.

What happens now?

If you haven’t already done so, please rate your answer above. Or, you can reply to me using the box below.

 

But again, ...

 

Let me know if you have any questions at all.

 

Lane

 

Customer: replied 10 months ago.

Lane, thanks very much. The only other question I have is to make sure there is nothing different about the way I would adjust the cost basis for this non-rental second home from the way I would handle it in connection with my principal residence. Sorry I missed the chat as I was off line.

Expert:  Lane replied 10 months ago.


No problem.

No, the adjustment is exactly the same as it would be for any capital asset.

On your PRIMARY residence you would be able to EXCLUDE up to 250,000 of gain (500,000 for married filing jointly) ... AND (again, on the primary residence), wouldn't be able to take any loss FOR that reason.

But here, this is treated (from a capital gains perspective) more like an investment asset - since it's not a rental ... rentals have other issues, such as depreciation recapture.

The second home is just like any other capital asset. PURCHASE PRICE PLUS IMPROVEMENTS = BASIS.



Hope this helps

Lane

Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 4010
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and 7 other Tax Specialists are ready to help you
Customer: replied 10 months ago.

Thanks so much.

Expert:  Lane replied 10 months ago.

You're very welcome!

If you'd like to work with me again, you can either (1) add me as a preferred expert on your home page, (2) say “For Lane only,” at the beginning of another question OR (3) use my profile page: here

http://www.justanswer.com/finance/expert-npvadvisor/


Thanks again,

Lane

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