19 Mar Can condo fees be added to cost basis?

Q. I have a condominium in a multi-story building and I pay a monthly maintenance fee. Some of the money is used for capital improvements, such as a new roof or building ventilation system. May my share of these long-term improvements be added to the cost basis of my condo?
— Owner

A. Yes, you can add a portion of your maintenance fee to your cost basis.

But this can get tricky.

Typically condo association’s plan or budget for capital improvements over a long time horizon, said Michael Maye, a certified financial planner and certified public accountant with MJM Financial in Gillette.

In order to fund the capital improvements, a portion of each month’s association fee is collected for capital improvements and placed in reserve, Maye said.

The tricky part? Does the condo owner’s cost basis go up when they are assessed on a monthly basis or when or when the capital improvements are actually made and the condo association spends the money?

Maye said this is a gray area, but based on the patchwork of IRS code sections, it appears that the unit owner can add to their cost basis as they are assessed.

“However, condo owners need to be aware some items reserved for such as painting are not considered capital improvements,” he said. “So they should reach out to their condo association to understand the budget for each fiscal year to see what is included in their monthly association fee being collected that year.”

Maye said the key is that only condo association assessments for capital improvements can be added to the cost basis and regular repair and maintenance items can’t.

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This story was originally published in March 2019.

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