Real estate options in New York City differ from the traditional housing choices found across the nation. Unlike the traditional apartment or single-family residence most Americans select, Co-op housing comprises the majority of New York City apartment buildings. Living in a cooperative housing building means owning a share of the co-op not-for-profit corporation that owns the building. So despite your purchase, it’s not really the apartment that you’re buying.
The equation is quite simple: as apartment size increases, the share increases. Plus, maintenance fees cover utilities and real estate taxes. There are many benefits to living in a co-op, including possible tax deductions. However, with high payments and residency complications, there might be better options for your renting needs. Here’s a guide of what to expect for your taxes when living in a co-op.
Compared to the property taxes of condominium apartments that factor in assessment values, co-ops generally fare better. Because the corporation that owns the building handles the property taxes, shareholders merely pay their share’s fraction of the cost back principally, as part of the monthly maintenance fee. As previously noted, buying a condo tacks on property taxes that potentially exceed the rates charged to owners of some of the most coveted and upscale co-ops in New York.
Co-op units charge a higher monthly or quarterly maintenance fee than condos by including partial mortgage, taxes, internal and external upkeep, and occasionally utilities. However, condo’s don’t provide tax deductions in the monthly maintenance fee.
Co-op shareholders earn reductions to their share of the property taxes and the interest on the underlying mortgage of the building. Considering that New Yorkers face one of the priciest square footage markets, with most renters allotting thirty percent of their incomes to rent, any tax deduction helps.
The reduction amount depends on the average assessed value of the home units in the co-op building. As the assessed property value increases, so do property taxes, while benefits decrease. Benefit amount percentages per year range from 17.5 percent for the highest-value buildings ($60,001 or above) and 28.1 percent for the lowest-value buildings ($50,000 or lower) for the 2014-2015 period.
New York state tax law requires co-ops to receive the same value assessment as true rentals. This practice means comparing co-ops to other properties considered comparable, but since this often proves difficult for the various types and styles of co-ops, many go undervalued when compared to dissimilar rent-control properties. However, this does benefit many co-op shareholders with a greater tax break.
Primary Residence Complications
Sometimes, tenant shareholders face issues qualifying for the tax abatement. The limitation for qualification focuses on primary-residence status. Some contingencies exist for shareholders with up to three units, as long as one is the primary residence. This doesn’t seem like a major issue, but for those with units under a trust or limited-liability company who still use the unit as a primary residence, they lose the reduced taxation aid.
The degree of tax help for co-ops depends on situation and income-level, really. Still, co-ops helped to keep the Big Apple out of the same real estate market crisis that hit the Nation. As a new resident in a co-op or someone considering moving into one, remember to apply for a tax deduction.