Forced to Sell in a Condo Deconversion: Illinois and Florida Rules for Sellers and Your Exchange

Your choices are to vote, to object for the appraisal price, or to sell before the vote, and the tax plan starts with which one you take

A deconversion begins when an investor offers to buy every unit and the association puts a sale to a vote. Once the vote passes, Illinois makes it "the duty of every unit owner to execute and deliver such instruments" as the sale needs, and Florida records a plan of termination "in the same manner as a deed." Your leverage is before the vote, when a single owner can still sell to the bulk buyer or to anyone else on ordinary terms.

After the vote, the question is price. Both states give an owner who did not vote in favor a path to a value set outside the contract, and both make the closing date a decision of the buyer and the association rather than yours. That is the problem for an exchange: the calendar is fixed by others, and your replacement has to be ready for it.

Whether you vote yes or object, the sale is taxable in the year your unit transfers. The rental condo property page covers what a condo unit brings to an exchange in general; this page is about the forced-sale rules and the owners who face them.

Illinois: 75% of owners can bind the rest, and an objector is paid the greater of appraised value or acquisition debt

Under 765 ILCS 605/15(a), unless the declaration or bylaws set a higher figure, a majority of owners where the property has two units, not less than 66 2/3% where it has three, and not less than 75% where it has four or more may "elect to sell the property" at a meeting called for that purpose. The vote binds every owner.

An owner who did not vote in favor and files a written objection with the board within 20 days of the meeting is entitled to the greater of the value of the unit "as determined by a fair appraisal" less unpaid assessments, or the outstanding balance of a bona fide debt incurred to acquire or refinance the unit less unpaid assessments, plus reimbursement of reasonable relocation costs measured under the federal Uniform Relocation Assistance Act. If the value is disputed, section 15(b) gives the owner, the buyer and a third expert chosen by both a panel that decides by two votes of three. The current text took effect January 1, 2018 under P.A. 100-292.

For an exchange the appraisal route changes the amount realized, not the timing. Whatever the panel sets is your sale price for reinvestment purposes, and the intermediary must hold it from closing. The Illinois exchange page covers the state's own tax rules on the gain.

Florida: 80% of voting interests approve, 5% can block, and a bulk owner's plan must pay objectors full value

Florida's optional termination under section 718.117(3) requires a plan approved by at least 80% of the total voting interests, and the plan may not proceed if 5% or more of the total voting interests have rejected it; a rejected plan cannot be reconsidered for 24 months. A separate route in subsection (2) covers termination for economic waste where repair costs exceed the units' combined value after completion.

When a bulk owner holds at least 80% of the voting interests, subsection (3)(c) requires the plan to pay objecting owners and owners who did not vote at least 100% of the fair market value of their units, with homestead and owner-occupied units valued at no less than their original purchase price, a relocation payment equal to 1% of the proceeds allocated to a homestead unit, and payoff of any first mortgage to the extent needed to release it. The plan must be executed like a deed and recorded in every county where the condominium sits.

Florida owners often meet a deconversion after a milestone inspection or a structural integrity reserve study produces an assessment the building cannot carry; the special-assessment guide covers those statutes and the choice to sell before the bill lands. The Florida exchange page covers the state side of the sale.

A deconversion is not an involuntary conversion, so section 1033's longer window is not available and section 1031's shorter one is

Section 1033(a) applies to property converted "as a result of its destruction in whole or in part, theft, seizure, or requisition or condemnation or threat or imminence thereof." A vote of your neighbours is none of those, and the bulk buyer is not a government. The two- and three-year replacement periods that follow a condemnation do not apply; the tax deferral map sets the two provisions side by side.

That leaves the ordinary exchange. Reg. section 1.1031(k)-1(b)(2) starts the 45-day identification period and the 180-day exchange period "on the date the taxpayer transfers the relinquished property," which in a deconversion is the bulk closing date for your unit. The exchange agreement with a qualified intermediary has to be signed before that day, and the closing statement has to send your unit's proceeds to the intermediary rather than to you.

Owners in one building are in different tax positions. An owner-occupant who has lived in the unit two of the last five years excludes up to $250,000 of gain, or $500,000 on a joint return, under section 121; an investor-owner exchanges; an owner who lived there and then rented it may use both under Rev. Proc. 2005-14, with the exclusion applied first and depreciation deferred by the exchange. The association's vote does not change any of that.

Worked model: a $300,000 unit rented for ten years, next to a neighbour who lived in hers

These figures are hypothetical and rounded. An investor bought a unit for $150,000, has taken $50,000 of depreciation, and the bulk buyer pays $300,000 per unit. The neighbour bought at the same price and has lived in her unit since.

• Investor, cash sale: $200,000 of gain, of which $50,000 is unrecaptured section 1250 gain taxed at up to 25% under Topic 409 and $150,000 is long-term gain at 15% or 20% by 2026 bracket, plus net investment income tax if it applies.
• Investor, exchange: reinvest $300,000 less selling costs within 180 days and the whole $200,000 is deferred, including the $50,000 of depreciation.
• Owner-occupant: $150,000 of gain, all excluded under section 121; no exchange needed, and none available while it is her home.
• Objecting investor paid $320,000 on appraisal: the amount realized rises to $320,000, and so does the reinvestment target; the relocation reimbursement is a separate item for your CPA to classify before closing.

The replacement for a unit's worth of equity is usually an all-cash DST, bought before the vote closes the calendar

Most deconversion sellers walk away with one unit's equity and no debt, which fits an all-cash traditional DST: Rev. Rul. 2004-86 treats the beneficial interest as an interest in real property, the sponsor has already closed on the property, and identification can be made before the bulk closing. The interests cannot be sold on demand, the sponsor sets the holding period, and the property can fall in value, so principal is at risk. Owners who want to hold title themselves can look at a direct title security instead.

The practical rule is to have the replacement identified before the association sets a closing date. A bulk buyer closing eighty units on one day will not wait for your identification letter, and the exit guide for condo rentals with HOA caps covers the parallel problem of leaving association ownership on someone else's schedule.