Sunday, October 1, 2006

Assessments Can Affect the Tax Basis

The New York Times
October 1, 2006

Q -- Can regular monthly payments that are made along with common charges but are listed separately under Capital Reserve Fund be used to increase the tax basis for a condominium when calculating capital gains?

A -- Martin M. Appelbaum, a certified public accountant in Manhattan, said assessments levied by a condominium board for capital improvements, whether paid as a lump sum or in monthly increments, can indeed be used to increase the tax basis of individual units, thus reducing the profit when the apartment is sold.

This assumes that the board has complied with Internal Revenue Service guidelines. Mr. Appelbaum said 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.

In addition, he said, there should be a separate line item on the monthly bill for the capital assessment. And finally, he said, money collected for the capital assessment should be held in a different account than the one used for other funds collected by the condominium.

"The condo board should consult with its C.P.A. firm to ensure they are following the proper procedure for billing and collection of the funds," Mr. Appelbaum said.

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