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?
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
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
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