One Commonly Missed Tax Break To Remember...
Condominium residents often miss out on the fact that upgrades to the common areas of communities can affect the amount of tax an owner pays when the home is sold.
If the property is a principal residence and the owner has lived in it for two of the previous five years before the sale, a big chunk of the profit is already exempt from federal tax — $250,000 for a single person and $500,000 for a married couple.
But the seller will owe taxes on any profit beyond that, and he will owe taxes on the whole amount if the property isn’t a primary residence.
A proportional share of the amounts spent by the condominum association on improvements to the property — not simple maintenance — can be added to the amount paid for the property, or in tax lingo, “the basis.” The basis is subtracted from the sales price to determine any taxable profit.
Surprisingly, many community association owners are not aware of this tax benefit. Particularly for older home owners who have watched real estate profit build up over many years and now have a profit of more than $500,000.
Please consult with your tax professional every year to ensure you are not missing out on any important tax deductions.