Getting the same tax benefit as single-family homeowners

One of the major advantages of homeownership is tax benefits. Including offsetting long-term taxes simply by taking care of the property.  Unfortunately, the majority of associations miss out on this for their ownership.

Property improvements can save on taxes

The key factor here is cost basis.  This refers to a home's original purchase price, plus replacements and improvements made.  Will a new roof be installed?  Will a new amenity be added?  Will there be a big remodel?  The more improvements made, the more write-offs an owner could claim.  And the lower their individual long-term taxes could be when they sell.

Higher cost basis   =   Lower potential taxes

Most single-family homeowners collect on this benefit.  However, if part of an association, most probably are missing out.  The reason: Co-ownership.

How co-ownership misses tax benefits

Each homeowner in an association “owns” a share of the entire property.  This is co-ownership. As co-owners, the entire property determines the value of each home.  Thus, the combination of an individual unit and their part of the common property.

Home value  =  Individual unit  +  Co-owned common property

The associations primary responsibility is governance.  This includes long-term care of the common property.  This upkeep and care are paid from owner contributions.  These payments include improvements that impact owner level cost basis.  Yet they are not tracked by the association. The result is this potential homeownership benefit is lost.

Associations obligations don’t align with owner interests

In the end, the reason is simple.  Associations are corporations and typically do not own the property.  Thus, their obligations and priorities are different than homeowners’.  Associations have the responsibility to perform improvements.  But as corporations they do not get any tax benefit from them.

Because associations do not own the common property
They don't capture tax benefits available to owners

Thus, the associations never try to capture those benefits.  Even though owners paid for the common property expenditures.  In turn, owners lose this potential sizeable benefit.  Again, one enjoyed by homeowners who are not part of associations.

Giving owners their benefits and improving the association

The key is to fix the disconnect between the association and ownership.  Specifically helping association boards see how this helps them both.  First is by providing clarity that this is possible.  Next is to help them understand the critical factors involved.  Finally, using these factors as part of their near and long-term budgeting.

Higher property values    |    Capture tax benefits

Considering these factors can lead to better board decisions and outcomes for ownership.  This includes investing in the common property that improves its total value.  And capturing the tax benefits owners are entitled too.

To Summarize

Associations and their owners can both benefit in a win-win.  The association can better address its long-term financial health.  And provide its ownership the same benefits enjoyed by single-family homeowners.