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
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?