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rakhi.v
rakhi.v, Tax Attorney
Category: Tax
Satisfied Customers: 4480
Experience:  Have graduated in Law with specialization & emphasis in Financial Laws and has working experience of over a decade.
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A Florida Condo Association sells a part of the original real

Customer Question

A Florida Condo Association sells a part of the original real estate asset included in the limited common areas. How should the sale be treated for tax purposes?
The view deemed most logical by some is that the sale of an asset by an Association representing 200 unit owners is not a taxable event to the Ass'n. It represents a reduction in the capital cost of each owner. As a consequence it may become a taxable event if, as and when, individual owners sell their units, but only if there is a capital gains of over $500,000 and the funds are NOT re-invested.
Another view is that the sale is a taxable event and that the entire sales proceeds constitute a capital gain on which tax must be paid. That view assumes a zero capital cost to the Association. I regard this as ludicrous.
The Association merely represents the interests of a "partnership" of all units who are members. It is, or should be, in fact a form of S corporation for purposes of taxation. Especially, since it never had any original funds of its own with which to buy anything. The limited common area having been created when the Cond was initially formed 50 years ago.
How say you?
Submitted: 8 months ago.
Category: Tax
Expert:  rakhi.v replied 8 months ago.
Dear Friend,Hello and welcome. Thank you for providing an opportunity to assist you.From what I understand from your situation, an Association merely represent the collective ownership of ALL of the individual owners. From what I further understand that IF the association sells any common areas, it would result into reduction into capital cost / basis of the individual owner. In now way, should this be treated or emerge as a taxable event for the association as the association NEVER purchased anything of such asset from its own money. Having said this, I believe there would be a occasion of taxable event ONLY when the individual owners sell their units and do not opt for other Capital Gains Deferment Strategies in future. I am sure this would help. You may please leave a positive rating if this helps as this is the only way we are compensated for assisting you. Alternatively, you may revert back with a reply if you need further assistance or if I have missed out on any aspect of your question. Warm Regards,
Customer: replied 8 months ago.

Your answer is not entirely clear. The way your answer is phrased may suggest that it is my premise that you based your answer on and not your understanding of the law. The Association is a Florida Condo Association incorporated in Florida before the Condo was built. It is my understanding that as such it is always merely the representative of the collective ownership by the unit owners of the common and limited common areas of the condo real estate. I am stating that as my understanding. Is it not yours also?

The sale was of a unit owned by the Association and previously rented out. That makes it a limited common area of the Ass'n. When the unit was sold it was regarded as a sale by the Ass'n of an asset which belonged, albeit indirectly, to the unit owners and therefore was a reduction in their capital cost. Do you agree?

Perhaps a clearer way to put the question would be: Can a Condo Florida Association that sells a limited common area unit it was renting earlier, be taxed independently on 100% of the sale proceeds, when it never paid for the unit and the beneficial interest of the unit sold lies with the 200 unit owners it represents? Or should the sale constitute a reduction in the capital cost of each individual unit owners?

Finally, is there any case law supporting any view on the subject?

My read of your answer is that it is not a taxable event to the Ass'n at all. I do need confirmation that I am reading it correctly. Thanks

Expert:  rakhi.v replied 8 months ago.
Dear Friend,Hello again. No, I did not base my answer on your premise. It is certainly based on my understanding of your issue. After some research, I believe there is more of a legal angle as well. A legal expert would be able to properly "Quote" you the statutes which govern this as well. Your satisfaction is of utmost importance to us. At no point, we would like you to remain in any doubt. I am, therefore, Opting out and see if other expert can assist you with this. Warm Regards,
Customer: replied 8 months ago.

Is it still your initial opinion, subject to further research, that it is not a taxable event? I ask because I doubt there is any definite answer, nor any case law on the matter. I may have to be satisfied with uncertainty. My father said to me when I was 12 years old.

" Remember son, the best looking woman in the world can only give you what she's got." That was 70 years ago. I always found him to be right on that.

So, the bot***** *****ne is, I will have to be satisfied with whatever the best information is available.

Expert:  rakhi.v replied 8 months ago.
Hello again.That is the very reason I opted out. Though I am pretty sure on my opinion which is more based on my understanding of the issue than your set premise, I wanted you to be greatly and definitely satisfied.Case laws can be quoted only by a legal counsel and we being financial experts and financial laws experts are less equipped to do that. Lets see if someone answers this. The answer will not change but it will be supported by proper case law quotes. Warm regards,
Customer: replied 8 months ago.

Does your opting out automatically place the question back on line, or do I have to do something further?

Expert:  rakhi.v replied 8 months ago.
Sorry, your reply just appeared to me today. No, this puts your question into "open questions" lists automatically. No need to do anything more.Alternatively, you can post a NEW question under legal category.Warm Regards,
Customer: replied 8 months ago.

thank you

Expert:  rakhi.v replied 8 months ago.
You are most welcome.

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