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is condo conversion fee tax deductible?

Dear Experts,

 

my have a condo for rental, HOA plan to convert from co-op to condo, owners need to pay roughly $4k to pay for the lawyer to do this. 

 

I am wondering if this fee is tax deductible? if so, under which category?

 

TIA

 

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4 Replies

is condo conversion fee tax deductible?

If this is a rental you report on a Sch E then it is a deductible expense ... line 10 ... professional fees. 

is condo conversion fee tax deductible?


@Critter-3 wrote:

If this is a rental you report on a Sch E then it is a deductible expense ... line 10 ... professional fees. 


Would it be an adjustment to cost basis?

 

This is what realtor.com says:

 

“When you purchase a home in a condo building, you are buying the actual home and a share of the common elements of the building,” explains Ryan Hardy, a Realtor® with Gold Coast Realty in Chicago. Those common elements can include yards, garages, rec rooms, lobbies, or gyms.

But when you buy into a co-op, you don’t technically buy (or own) the property at all.

“You are purchasing shares of stock in a corporation or other legal entity that owns” the building, Hardy says. “You then are allowed to occupy a specific apartment in the building outlined in a proprietary lease that you receive with your stock certificate.”

 

If the co-op (ownership of a share in a corporation) is being converted to a condo (titled ownership of a specific property), that sounds like it should be added to the cost basis.  (Certainly it would be added to the cost basis for a personal residence).

 

Then, if added to the cost basis, would it be depreciated?  It's more than $2500 so doesn't fall into the safe harbor.

 

Yes, it is a legal expense, and legal expenses are normally expenses, but does the reason for the expense change the treatment?

is condo conversion fee tax deductible?

Legal fees related to rental property, being quasi-business property, are generally ordinary and necessary expenses that can be immediately deducted. 

 

The instructions for Schedule E state: Do not deduct legal fees paid or incurred to defend or protect title to property, to recover property, or to develop or improve property. Instead, you must capitalize these fees and add them to the property's basis.

 

However, none of the foregoing is happening here. Rather, the legal expense is mandatory for share owners as a result of the action of the co-op board.

is condo conversion fee tax deductible?

Thank you all for the advices!

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