Would this be a Capital Improvement?

Your condo documents will control; however, common sense dictates that the board undoubtedly had a responsibility to _maintain_ facilities necessary for habitability -- which would include heating and air conditioning equipment. Especially in view of the advice the board received indicating a possible failure of the old, existing equipment, the board would be guilty of a "failure to maintain" the property, if they didn't act to replace this.

Therefore, it is not primarily a 'capital improvement' -- but rather a maintenance expenditure. So the plain answer to your first question is "No."

I truly don't understand the second question: Of course, based on the entire condominium concept, you automatically own a share of the common elements -- but that "ownership" is simply reflected in the value of your individual unit. There's nothing there to "share" except the value of your unit -- which would surely decline, if the overall common elements were not maintained properly.

Bill

Ok.. that explains it..... But on a larger scale, what is the common line thats drawn to help decide whether a home's upgrade is considered Maintenance or a Capital Improvement?

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"boostm3" wrote

If the expenditure extends the life of the structure.

The building would be too hot, or too cold, or at times, just right - but the building itself isn't going to last any longer because you fixed or replaced the heating and air conditioning unit.

But adding a hot water heater, for example, in the first place is a capital expense, isn't it? So why isn't replacing it when it breaks down also considered a capital expense?

Stu

"Stuart Bronstein" wrote

I suspect that part of his purchase price could be allocated to the existing system, and that cost needs to be removed from basis (because the old system is gone) and then add the cost of the new system. I suspect it's a shell game for a very few dollars to his advantage. You can't keep stacking new basis on top of old basis when the old asset is removed.

If there wasn't a water heater and one was installed, then it's a plus without any minus.

In the case of the OP, there was something he bought, that is being removed and discarded, so some subtraction to basis should be in order, yes?

Then the replacement item can be added to basis.

The purchase cost of the old unit isn't clear, but there was something - some value - that could be placed on the existence of a then working unit. At best, it'd be the amount he would have asked off the purchase price if when he went to buy, the unit wasn't working or there wasn't one at all. At worst,. it'd be his share of the cost of the replacement unit.

It starts to sound like a game with no to very little gain.

Im with you on this on this one, Stu. I just read the following in my research:

"The IRS states expenditures that increase the value or longevity of a home qualify as "capital improvements". Things like a garage, deck or porch. The list can also include a new roof or heating and cooling system, insulation, and built-in appliances. Even a fence, landscaping, swimming pool or addition qualify."

So, in general, a case can be made that any addition or uprgrade that increases the home's value or longevity could qualify as a capital improvement. Certainly, then, a 20 yr old Cooling Tower which is on the verge of failure can be upgraded, and the upgrade would quailify under the above statement. The upgrade is financed by the unit owners via an assessment levied. As unit owners, we vote on the assessment, and if approved by a majority of us unit owners, the assessment is broken into 3 monthly payments which are added on to our common charges for those 3 months. Since we are paying for the cooling tower replacement, I initially thought we unit owners would be allowed to take this assessment as a capital improvement tax deduction. But, technically, I think that all we really own is our own unit. Common elements are paid for by us via monthly common charges, but not 'owned' by us, I believe.. . I wonder if any Condo owners have ever been able to make the case that common element upgrades are deductible as home improvements to each unit owner.

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As long as the new whatever was better than the old one (e.g higher efficiency, looks better etc) it is an improvement and if it has a useful life of more than a year than it increases the basis.

In all likelihood a replacement roof, water heater, furnace is better than the old one. A potential buyer might not specifically pay more for these things but he would surely use the presence of the old item as a bargaining chip

You did not state why it matters to you. If this condo is not a business, but is just your residence, most people would not find the distinction to be worthwhile. Maybe you are claiming at least part of the condo as used exclusively for business.

Wait! Wait!

I'm no expert on these issues, but seems to me I've seen lengthy debates rage in the past on whether major roof repairs/replacements (on a house, for example) had to be treated as repair costs or capital investments; and while the endpoint remained murky, there seemed to be some agreement that putting on a totally new roof (which means, more or less at least, tearing off the old one) was definitely a capital improvement.

But are you now saying that when you first tear off the old roof (which may still have a bit of serviceable life in it), you have to reduce the basis of the house (due to having "removed" it), before you can "stack on" the cost of the new roof as a new addition to the basis?

If each unit owner were assessed $6000 for his share for a major garage upgrade, or a cooling tower, whatever, and a portion of that cost could be written off as a capital improvement, why would that not be " worthwhile" ? I Didnt say anything about a business here . I described the setup pretty thoroughly just as it is.. Condominum.. Unit Owners being assessed for capital improvements to the Common elements of the condominium.. Lets take it as a given that these ARE capital improvements so that we dont get off into that debate which is a whole other matter, Im just trying to determine if typical condominium ownership where the unit owners own their units and pay common charges monthly to support the Common Elements of the condominium would be entitled to write off a portion of their share of the assessment which pays for the capital improvement to the Condominium.

"boostm3" wrote

"write off".......no.

In the case where there is the Condo Assn "pool" of funds for some future capital improvement, the issue of just exactly what happens with the funds would be of concern. Say the facts are different, and instead of a one-time hit of thousands of dollars, they are assessed an extra $50 per month which goes into the fund for some future, often unknown, major repair or capital improvement. I would suspect what happens to your share of that fund upon your sale of your unit would drive how it's treated. If it's refunded to you, then it's nothing more than an escrow account - no deduction or basis increase is warranted.

If you lose your escrow, meaning it stays with the Assn for that future repair/improvement, then it most likely is a basis increase. The buyer steps into the ownership position with an "ante" in the escrow already paid.

Often times though, the monthly fees cover regular maintenance, common services (trash, etc), minor repairs to common areas, and the like. Unless there's a stated amount that is restricted and set aside for this improvement there's no reason to increases basis even though there is an increase in cash reserves.

So the facts and circumstances pattern would dictate if the fees paid are non-deductible personal expenses of maintaining the home, some type of capital improvement that adds to basis, or a combination of the two.

You cannot write off the expense/improvement for your residence, just as a home owner who adds central air from scratch or who builds a garage cannot deduct that.

It would only come into play as the basis for capital gains tax upon sale if the exemption was not sufficient, so the distinction question is not moot. It is the "writeoff" part that won't happen in either case.

You would be able to deduct the property taxes that increase with the value of your property. :-(

Because it's a replacement. That's the first clue, but not conclusive.

Remember the roofing case from the Tax Court in 2002 where the taxpayer simply paved over the old roof with a new one - and got to EXPENSE it?