Condo Purchase Price Allocation

Technical topics regarding tax preparation.
#1
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In most HOA setups that I'm familiar with, a buyer purchases both a unit and shares in an association.

The unit is usually "walls-in" but may include some exterior features attached to the unit or even a parking space or storage area.

The association usually owns all of the common elements and usually some exterior features which may include balconies, stairs, and/or roofs.

My question is: is it appropriate to allocate some of the purchase price to land if a buyer doesn't own the land, but rather owns shares in an association that owns the land?
 

#2
makbo  
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ManVsTax wrote:The association usually owns all of the common elements and usually some exterior features which may include balconies, stairs, and/or roofs.

My question is: is it appropriate to allocate some of the purchase price to land if a buyer doesn't own the land, but rather owns shares in an association that owns the land?

Yes.

Your question should actually be flipped around: is it ever appropriate not to include an allocation for land? After all, you are including the value of the common elements and "balconies, stairs, and/or roofs", so why would land not also be included? They purchaser purchased the whole bundle, didn't they?
 

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Thank you makbo.

Any authoritative support?
 

#4
makbo  
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ManVsTax wrote:Any authoritative support?

No, I can't find any authority for not allocating some of the cost to land. ;)
 

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That's rather cheeky of you makbo, however we both know I was asking if you have any authoritative support for your assertion, that is, for allocating purchase price to land in an asset acquisition in which the land is not conveyed by title but rather through shares in an association.
 

#6
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Ok, how about allocating some of the purchase price to the "shares in an association". Just don't call it land.
 

#7
supdat  
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We have been down this road before.

viewtopic.php?f=8&t=5418

Look DaveFogel's post # 12 for illustrative cases on point.
 

#8
JR1  
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And exactly what value are those 'shares in the assoc."? Zip. Trying selling them.
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Thanks for the link supdat. Per Willits v. Commissioner, the ownership issue appears to be more of a legal determination which is based on state law.

SO if we apply Willits, we should also allocate purchase price to other real property of the association's common elements such as land improvements (sidewalks, parking lots, landscaping, gates, fences). Agree?
 

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Thank you all for responding.
 

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Agree?


No, forget it. It’s hard enough to figure out the land piece in these situations, so allocate to the Land and move on.
 

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Thanks for your response Jeff.

I should have worded my question

"SO if we apply Willits, we should also it is permissible to allocate purchase price to other real property of the association's common elements such as land improvements (sidewalks, parking lots, landscaping, gates, fences). Agree?"

I understand there is a cost-benefit and your response dealt with the practicality. But if we follow Willits, isn't that the conclusion we come to?
 

#13
makbo  
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ManVsTax wrote:for allocating purchase price to land in an asset acquisition in which the land is not conveyed by title but rather through shares in an association.

Why should legal form of ownership have any bearing on depreciation calculations? If one entity owns, say, a ten-unit residential building and land it sits on, there is no question of allocating to land. Yet you are proposing that if the exact same property is owned by ten different entities, somehow the land suddenly disappears for purposes of depreciation?

It just seemed odd to me that you felt it was the normal case that would need authoritative support, rather than the special case you were shooting for.
 

#14
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You're mixing apples and nanners. You've got different entities here...The condo owner doesn't own the land. The Assoc. does?
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makbo wrote:Why should legal form of ownership have any bearing on depreciation calculations? If one entity owns, say, a ten-unit residential building and land it sits on, there is no question of allocating to land. Yet you are proposing that if the exact same property is owned by ten different entities, somehow the land suddenly disappears for purposes of depreciation?


There is a distinction between legal entity and tax entity as I'm sure you're well aware.

Makbo, if the land was owned by SMLLC A, the building owned by SMLLC B, and SMLLC A & B are both disregarded entities owned by Individual C, I'd be in agreement with you and this thread would not have been created. However, that is not the fact pattern in the OP. The fact pattern was individual has legal title to an interior portion of a building. A separate regarded entity, the association, has legal title to the land.

It's not as clear cut or as simple as you would like it to be, as evidenced by Willits. Treatment regarding this fact pattern is heavily dependent on state law surrounding condo and homeowner's associations. Thanks again to supdat for posting the link. I somehow missed that thread when I was researching.

makbo wrote:It just seemed odd to me that you felt it was the normal case that would need authoritative support, rather than the special case you were shooting for.


Sometimes I get crazy ideas. Sometimes I feel like these ideas are worth enough time to vet out because they would be sufficiently beneficial to my current or future clients. We might be different in that respect.
 

#16
makbo  
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ManVsTax wrote:
makbo wrote:It just seemed odd to me that you felt it was the normal case that would need authoritative support, rather than the special case you were shooting for.

Sometimes I get crazy ideas. Sometimes I feel like these ideas are worth enough time to vet out because they would be sufficiently beneficial to my current or future clients. We might be different in that respect.

You're right; we're different in that respect. Or perhaps it's more accurate to say our clients are different in that respect.

I don't spend my time pawing through the tax code looking for unintended loopholes that result in undeserved tax breaks for people with enough wealth and income to be landlords. I've owned and rented out two different condos over my life as a taxpayer, and it never occurred to me that I should be able to avoid allocating some of my cost to the land portion that was clearly part of my property, just like any other typical residential landlord in a similar position.

In fact, since in each case my period of ownership only lasted a year or two, I probably came out ahead by allocating some to land, as it meant less Sec 1250 gain upon disposition.
 


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