Basis for condo


M

Me-manny

I sold my condo in July. I am figuring out what my basis is. My
question: The association assessed me for putting on a new roof on
the clubhouse (not in my building, but part of the complex) and a deck
around the clubhouse. Can I add that assessment to my basis?
 
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J

JoeTaxpayer

I sold my condo in July. I am figuring out what my basis is. My
question: The association assessed me for putting on a new roof on
the clubhouse (not in my building, but part of the complex) and a deck
around the clubhouse. Can I add that assessment to my basis?
The deck, maybe, as you paid for a piece of it. The roof sounds more
like a repair. Doesn't get added to basis.
 
D

D. Stussy

JoeTaxpayer said:
The deck, maybe, as you paid for a piece of it. The roof sounds more
like a repair. Doesn't get added to basis.
Careful: That depends on how the roof was done. There's a Tax Court case
from 2003(?) that allowed a new roof to be expensed as a repair (paved over
the old roof). However, if the old roof was removed, then it's a
replacement and therefore chargable to capital. I assume that your condo
ownership gives you a share of rights to the common areas and that the
clubhouse is a common area. Remember, if so, you may only add your share
of the assessment that went to the improvement, and not other charges.
 
J

JoeTaxpayer

Careful: That depends on how the roof was done. There's a Tax Court case
from 2003(?) that allowed a new roof to be expensed as a repair (paved over
the old roof). However, if the old roof was removed, then it's a
replacement and therefore chargable to capital. I assume that your condo
ownership gives you a share of rights to the common areas and that the
clubhouse is a common area. Remember, if so, you may only add your share
of the assessment that went to the improvement, and not other charges.
I stand corrected - A full replacement of a roof is capital improvement.
Thanks.
 
B

Bill Brown

I stand corrected - A full replacement of a roof is capital improvement.
Depends on what you mean by "full replacement." There's another case
(which I can find and cite if I really have to) in which the leaky
roof was stripped to the bare, naked rafters with new plywood, tar
paper, shingles, etc covering the entire structure and the Tax Court
said that was a repair.

The key to repair expenditure vs capital expenditure is neither subtle
nor new. Does the expendtiture merely restore the structure to its
original usefulness (repair) or does it improve the usefulness/extend
the life over what either was before the need for the expenditure
arose? The cost of fixing a LEAKING roof of a business or rental
structure is currently deductible, no matter how extensive the repair
process is.
 
S

Stuart A. Bronstein

Bill Brown said:
The key to repair expenditure vs capital expenditure is neither
subtle nor new. Does the expendtiture merely restore the
structure to its original usefulness (repair) or does it improve
the usefulness/extend the life over what either was before the
need for the expenditure arose? The cost of fixing a LEAKING
roof of a business or rental structure is currently deductible,
no matter how extensive the repair process is.
Seems reasonable on one level, but unrealistic. What you're saying
is that if the roof completely blows off in a hurricane, putting on a
new one will be a repair. I'm not so sure about that.
 
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We don't even know how the condo was used. If it's a personal residence, everything would go to basis, since nothing is deductible.
Now, if it was a rental property, it really depends whether we have an improvement (better than before), and/or extending the life of the structure.
If a relatively new roof is being destroyed in a hurricane, and you replace it with a substantially identical roof, it will be repair and currently deductible. Now, if you replace your old leaky roof with a brand new one, it will be considered an improvement, and capitalize it. It really depends on the situation. This is not one size fits all.

In the year of a sale, the gain or loss will be the same (if it's a rental), since it will give you a benefit either way.

Dieter
 
P

Pico Rico

Stuart A. Bronstein said:
Seems reasonable on one level, but unrealistic. What you're saying
is that if the roof completely blows off in a hurricane, putting on a
new one will be a repair. I'm not so sure about that.

I vote for repair. If the whole building blows away, probably not.
 
S

Seth

Seems reasonable on one level, but unrealistic. What you're saying
is that if the roof completely blows off in a hurricane, putting on a
new one will be a repair. I'm not so sure about that.
The building was built in 1990 with a roof likely to last around 30
years, ending in 2020. The roof was blown off in 2010 and a new roof
put on, also with a 30-year life expectancy, so now it should last
until 2040. Thus, the life was extended from 2020 to 2040, therefore
capital.

Seth
 
P

Pico Rico

Seth said:
The building was built in 1990 with a roof likely to last around 30
years, ending in 2020. The roof was blown off in 2010 and a new roof
put on, also with a 30-year life expectancy, so now it should last
until 2040. Thus, the life was extended from 2020 to 2040, therefore
capital.
The building was built in 1990 with a building lifespan likely to last
around 100
years, ending in 2090. The roof was blown off in 2010 and a new roof
put on, so the building should continue to last until about 2090. Thus, the
life of the building was not extended, therefore
repair.
 
D

D. Stussy

Pico Rico said:
The building was built in 1990 with a building lifespan likely to last
around 100
years, ending in 2090. The roof was blown off in 2010 and a new roof
put on, so the building should continue to last until about 2090. Thus, the
life of the building was not extended, therefore
repair.
Restoring a property after a casualty is a basis adjustment, not a repair -
because the casualty loss adjusted the basis.
 
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B

Bill Brown

The building was built in 1990 with a building lifespan likely to last
around 100
years, ending in 2090.  The roof was blown off in 2010 and a new roof
put on, so the building should continue to last until about 2090. Thus, the
life of the building was not extended, therefore
repair.
What good is a roof when the underlying building is gone?
 
M

Me-manny

assuming the taxpayer took a casualty loss, then yes, it would be capital,
adjustment to basis.

If not, then it is a repair, for the reasons stated above.
Thanks for the comments. Is there any publication that discusses
repair vs replacement of roofs, decks, docks, etc in a condo
association for IRS purposes?
 
R

removeps-groups

assuming the taxpayer took a casualty loss, then yes, it would be capital,
adjustment to basis.

If not, then it is a repair, for the reasons stated above.
What if insurance paid 90% of the cost for replacing the roof? Then
does house decrease by 10% of the cost of the original roof, increase
by 10% of the cost of the new roof, and taxpayer claims 10% as a
casualty loss on Schedule A (maybe not being able to deduct anything
if their AGI is very high)?
 
S

Stuart A. Bronstein

Bill Brown said:
What good is a roof when the underlying building is gone?
Good quesion! After all, they'd have to pay for it if it's not on
the house.

[Sorry about that, I couldn't help myself.]
 
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M

Me-manny

Careful:  That depends on how the roof was done.  There's a Tax Court case
from 2003(?) that allowed a new roof to be expensed as a repair (paved over
the old roof).  However, if the old roof was removed, then it's a
replacement and therefore chargable to capital.  I assume that your condo
ownership gives you a share of rights to the common areas and that the
clubhouse is a common area.  Remember, if so, you may only add your share
of the assessment that went to the improvement, and not other charges.
I called the IRS. The man I spoke to said that any additions to
common property
(such as a new deck around the clubhouse) in the Condo can not be
added to my basis,
is this correct? I (and all owners) paid a special assessment to
build the deck.
 
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