Dear Ray, I live in a condominium. I’ve been told that I cannot deduct my homeowner’s dues. I recently had to pay a special assessment for improvements. Can I deduct the amount I paid for the special assessment? Can I claim a deduction for my share of property taxes paid for common areas? As a condo owner, what deductions can I take?
— K.M.
All homeowners (condos and single-family-home owners), need to be aware of the federal income-tax deductions that are available to them.
If you have a mortgage on your home, a portion of each monthly payment goes to repay the debt, and a portion pays the interest on the loan. The interest portion of the payment is tax-deductible. This applies to condos and single-family homes.
At the end of the year your lender will send you Form 1098. This form tells you how much interest was paid during the previous year. That is the amount of interest you may deduct. Most homeowners pay taxes to the local and state government. In most cases, property taxes are fully deductible.
If you refinance or get a second mortgage, the points paid during refinancing can be deducted over the life of the loan.
To answer your questions about the tax deductions specific to condominiums, I turned to Norm Roberts, principal of the public accounting firm of Smith & Just, in Seattle.
Q: Can I deduct the amount I paid for a special assessment? Norm Roberts: My answers are restricted to those cases where the condo is your personal residence, not a rental. Tax deductions are allowed only to the extent provided for in the Internal Revenue Code. Homeowner dues and special assessments, not being provided for, are thus not deductible.
However, homeowner associations were originally established so that condo owners would have the same tax treatment as individual homeowners. Thus, homeowner associations are acting as agent for the unit owners. As a result, the unit owners may be able to add some or all of the special assessment to their basis (cost) in their condos, ultimately reducing their gain upon sale of the unit.
Q: Can I claim a deduction for my share of taxes paid for common areas? Norm: Usually the real estate taxes on the common areas are split among the owners, so this question would not typically arise. However, on the theory that the homeowners’ association is acting as the agent for the unit owner, the condo owner should be able to deduct property taxes paid on their behalf.
Q: As a condo owner, what deductions can I take? Norm: The deductions a condo owner can take will be the same that an individual homeowner can take. Mortgage interest and points paid on purchase or refinance are deductible, of course, subject to a series of limitations, though.
Real estate taxes paid are deductible. The cost of major improvements can be added to the unit’s basis for the purpose of reducing gain upon sale. There are tax credits, such as energy credits, that are also available to condo owners.
In general, insurance, homeowner dues, utilities and maintenance are not deductible.
The tax code is complicated. When you reach the point where you are itemizing your deductions, it’s best to have your tax returns prepared by a Certified Public Accountant (CPA).
I’d like to thank Norm Roberts, of Smith & Just, for his advice.
RAY AKERS has been a licensed Realtor for more than 20 years. Send your questions to ray@gbk.com or call (206) 723-2800.[[In-content Ad]]
