Tennessee Associations and Real Estate Taxes
December 16, 2013
How common areas and general common elements are treated for real estate tax purposes is often a concern for Tennessee associations. It should be noted that common areas are found in homeowners associations, and general common elements are found in condominium associations. Common areas are typically conveyed to the association. Consequently, the association owns the common areas. Each lot owner in the development will likely have certain easement rights or rights to use the common areas as provided in the CCRs. General common elements are different. General common elements in a condominium development are owned in common by all of the unit owners in the condominium development. As such, each unit owner has an undivided ownership interest in the general common elements. This ownership interest cannot be severed from the unit owner’s title in the unit. The association in a condominium development does not own the general common elements. Rather, it is responsible for the maintenance of the general common elements.
Thus, the distinction is that common areas are owned by the Association and general common elements are owned in common by the unit owners.
Real estate taxes for common areas are usually de minimus. Any such real estate taxes should be paid by the Association.
Real estate taxes for general common elements are theoretically taxed to the unit owners in a condominium development. As noted above, each unit owner owns an undivided interest in the general common elements that cannot be legally separated from his or her unit. In fact, both the Horizontal Property Act (see, Tenn. Code § 66-27-120) and the Condominium Act of 2008 (see, Tenn. Code § 66-27-205) provide that units must be separately taxed. Thus, all taxes on general common elements are paid for by the unit owners. Thus, a condominium development should not be assessed real taxes. For a condominium development to assessed real estate taxes leads to a double taxation issue as those taxes are already included in the assessed valuation of the individual unit. Simply put, a condominium association in Tennessee should not pay real estate taxes.
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