A condominium is different from a house in many respects. For instance, condos typically do not have a yard or basement. Instead, condo owners share land, lobbies, elevators, stairs, pools, and other service areas. As such, owners generally pay dues or assessments to a special corporation that is organized to manage the common areas.
Are condo common area expenses deductible?
The short answer is that common area expenses are not deductible if the condo is being used as personal property. However, if the condominium association makes a capital improvement to the property, the owners can add their pro-rata share of the expense to their cost basis. It is important to save the supporting documentation detailing the nature of the improvement since it will be incorporated in your capital gains tax calculation when you eventually sell the condo.
What if you rent the condo?
Condo owners that rent the property throughout the year can immediately claim common area repair and maintenance expenses incurred as per IRC Section 280A. However, owners cannot deduct special assessments they pay to the condominium management corporation for improvements. Instead, the owner would recover their share of the cost of any improvement by claiming depreciation over time. If you’re wondering how to determine the difference between a repair and a capital improvement, it depends on the specific situation. For instance, if the condominium management corporation is repaving an existing surface, it’s treated as maintenance or a repair cost for the condo owner. This expense would be treated as a capital improvement if there was not an existing paved path.
References: IRC Section 280A; IRS Publication 527