Capital Gains Tax Reduction

The purpose of this service is to reduce the capital gains tax liability for the owners.  We accomplish this by combing through years of the association’s financial records in order to find assessments that were paid for capital improvements.  We would then determine how much of these assessments should be allocated to each unit for the purpose of increasing each owner’s tax basis, thereby reducing their capital gains tax when the unit is sold.

 

Some states, such as Florida, have seen real estate values increase by over 150% in the last 10 years.  That means that many sellers will find themselves owing a significant amount of capital gains tax, even if the property was used as a primary residence.  Although the IRS allows for an exclusion on primary residences of $250,000 for an individual or $500,000 for a married couple, owners who have owned their homes for many years may have experienced increases in value that exceed the exclusion amounts.  In addition, the exclusion does not apply to investment properties or vacation properties, so capital gains taxes would need to be paid on the entire profit from the sale of these properties.

 

Capital gains is calculated as the sales price of the property minus the tax basis of the property, so increasing the tax basis will result in less capital gains tax.  Many people fail to consider that a significant portion of the assessments paid to the condominium association or HOA were for capital improvements that should increase the tax basis for all the owners.  This may include portions of the operating assessments, reserve assessments, and special assessments.

 

For each year that we are engaged to provide the property tax reduction service, we will review the reserve study, the annual budget, the audited financial statements (if applicable), the general ledger, the repair invoices, the special assessment notices, the loan activity, the meeting minutes, and more.  We will use this to provide the board with a schedule of the amounts that owners should be able to utilize in determining possible increases in the cost basis of their condominiums and homes.  Each owner would be able to claim a portion of these capital improvements based on their percentage of ownership.  

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FAQS

Which types of associations can benefit most from this service?

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The following types of associations will find the most benefit from this service:

• Associations with many rental units.

• Associations with many units that are used as vacation properties or second homes.

• High-end associations that have experienced significant increases in property values.

• Associations that have passed large special assessments.

• Associations with owners who purchased their units many years ago.

 

For how many years should this service be performed?

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This depends on several factors:

• The availability of records.

• How long ago owners purchased their homes.

• The history of reserve funding and special assessments.

 

After a brief discussion with the board and review of the history of the association, we will advise the board of our recommendation.  If there were several years in which there were no special assessments, and minimal reserve funding, that would usually be the cut-off point for which we would suggest that it wouldn’t be worth engaging us to perform this service for those years.

 

Our rates are reasonable.  Contact us for a free consultation.