I lately acquired a number of queries from people dwelling in single-family properties within the New York Metropolis metropolitan space who plan to promote their dwellings and buy a condominium or cooperative condominium. Some potential sellers need to know the way possession of a single-family house differs from possession of a rental or co-op, whereas others are inquisitive about how the IRS will apply tax guidelines when house owners of co-ops use a portion of their month-to-month upkeep costs to extend the adjusted bases for his or her flats. The following few articles will probably be dedicated to answering these questions to assist potential sellers in addition to tax and accounting professionals who need to enhance their practices and higher serve their purchasers.
Co-ops, that are discovered primarily within the northeast United States, significantly in and near New York Metropolis, and condos are available in all shapes, sizes and configurations. They’ll vary from three-unit wood-frame homes to high-rise condominium buildings containing tons of of models to sprawling townhouse communities in park-like settings.
People who purchase single-family properties and rental models turn out to be house owners of actual property and obtain deeds that evince their possession. Whereas house owners of single-family properties personal all of their dwellings, totally different guidelines govern possession of condos. These of us personal their flats outright however don’t purchase any direct possession curiosity in these parts of the constructing or improvement which can be known as the frequent areas. These can embody lobbies, yards, garages, central heating, landscaping, laundry and storage rooms and athletic services. Oblique possession is exercised via a membership in a rental affiliation that owns and is chargeable for sustaining the frequent areas.
In the meantime, the rental proprietor is chargeable for separate fee of her personal actual property taxes, quantities that she will be able to declare, inside limits, as itemized deductions on Schedule A of the 1040 kind. She’s additionally chargeable for her share of month-to-month costs, often known as frequent costs. Her funds assist cowl bills incurred by the rental to keep up and function the frequent areas and the constructing methods.
When somebody buys a co-op condominium, they don’t turn out to be an proprietor of actual property, and so they don’t obtain a deed. Nevertheless, they do turn out to be an proprietor of private property; that’s, they personal shares within the constructing as an entire. In authorized lingo, the constructing is a cooperative housing company. These shares permit house owners, pursuant to what are often known as proprietary leases, to occupy specific flats or models.
House owners should pay month-to-month costs, often known as upkeep costs. These upkeep expenditures assist cowl what the constructing spends on salaries, utilities and different working prices, native property taxes and funds of principal and curiosity on any underlying mortgage on the constructing.
The standard co-op company has such a mortgage and assumes accountability for principal and curiosity funds. It passes them alongside to shareholders as a part of the upkeep costs.
What’s subsequent. Components two and three will clarify how the regulation permits a co-op proprietor to extend her condominium’s foundation past what she spends for capital enhancements, versus repairs, inside her condominium and the way an proprietor can enhance her foundation to replicate her share of upkeep costs or particular assessments which can be spent on enhancements for the advantage of all flats.