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Tax Talk with George Saenz

Ask the tax adviser

Tax breaks on second homes

Dear Tax Talk:
In 2002 we sold a condo that we owned less than a year. This was not our primary residence. During the time we owned the condo, we paid association fees. Can these fees be added to the cost of our condo when calculating the gains?
Julie

Dear Julie:
Since you have to pay tax on the gain on the sale of the condo, you should at least get some benefit for the association dues, right? Well, you can get some benefit but it depends on why you bought the property. You didn't say what your motivation for buying the condo was, but it's probably safe to assume that you had a profit motive.

Association dues and other maintenance costs cannot be added to the cost of the property. Generally, only interest, taxes and improvements can be capitalized to the cost of unproductive property.

If you tried to rent the property, then the expenses associated with the property should be reported on your Schedule E. If you used the property personally, you have to allocate your deductions.

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If the personal use was minimal, allocate based on the number of days. If the personal use was extensive, then the dues are considered personal and won't be deductible.

If you were unsuccessful in renting, you still may be able to write off the allocable dues as miscellaneous itemized deductions on Schedule A, subject to the 2 percent threshold of adjusted gross income. The dues are considered Section 212 expenses, which are expenses for the production of income.

-- Posted: Feb. 6, 2003

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See Also
New rules on residence sale tax exclusions
Avoid taxes by swapping property
Tax write-offs on a rented condo
Tax glossary
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