Maintenance tax deductibility is the amount of deductions a buyer can take from a portion of his/her monthly maintenance. This must be factored into your overall decision.
The range of tax deductibility spans anywhere from high 20% to high 70%.
For example, if the building maintenance tax deductibility is 60% and the monthly maintenance is $1,000, the purchaser will be able to write off $6,000 per year from his/her taxes.
This is very valuable and offers a difference way to analyze a real estate transaction. Its not simply about the Apartment purchase itself, but lends a greater glimpse into the impact of your overall finances and annual take home salary.
Roughly 75 percent of the Manhattan housing inventory is comprised of co-ops. Unlike a condo, co-ops are are owned by a corporation. This means, when you buy an apartment that is in a co-op building, you are not actually buying real property (like you would in a condo). You are in fact, buying shares of the corporation. These shares entitle you to a proprietary lease, which relates your relationship to the building close to that of an investor, rather than a condo building, where you are the outright owner of your specific unit. Usually, the larger the apartment, the more shares you will have in the corporation you have bought into.
Now that you know what it is you are buying, we can now look into how a co-op differs from a condo. First off, the approval process for co-op buildings is significantly more intensive than in condominium buildings. Co-op shareholders, unlike condo residents also pay a monthly maintenance fee to cover building expenses and upkeep like heat, hot water, insurance, staff salaries, real estate taxes and the mortgage debt of the building. Assessments on the building can also be incurred on the building and will (sometimes) drastically affect the value of the property you are considering.
The infamous co-op board sets their own standards in terms of the approval process as well as how the building is managed. Seeing that everyone owns shares in the building, the community as a whole is more concerned with who the building does or does not allow into the building. Co-op boards also require an interview (or interviews) to meet you and ask any questions regarding the information you provided. They can approve or deny any applicant as they choose. The co-op buying (and selling) process is tricky one, where a real estate broker will certainly come in handy.
Condominium apartments differ from co-ops seeing that you will be owning real property. Think of purchasing a condo like purchasing a house in the suburbs, the purchaser is given an actual deed to the property purchased. Seeing that you own real property rather than shares in a building, each individual apartment will receive a separate tax bill from the city (rather than having your taxes be complied into monthly maintenance as seen in co-ops). Condo owners are required to pay monthly common charges similar to the maintenance charges in a co-op, however these charges tend to be lower than in co-ops because there is no underlying mortgage for a condominium building.
The straightforward nature of buying a condo plus the fact that in some cases you can finance up to 90 percent of the purchase price and sublet your apartment at will makes this form of ownership a top choice for flexibility, especially among investors, foreign buyers and parents purchasing for their children. That being said, there are significantly fewer condos to come by. The majority of the New York City real estate market takes the form of a cooperative, while most new construction tends to be condo. Many talk in high regards toward condos, however the community that is formed within a cooperative building is significantly closer. Condo owners tend to keep to themselves, seeing that they own their property, while co-op owners see their role as part of the whole, rather than as an individual.
A condop is a condominium that has a residential coop unit separate from the commercial unit and or garage unit. During the late 1980’s several new developments were built as “condops” they were “hybrids” because the developer had an underlying mortgage on the residential portion of the project. The residential unit is a cooperative. Owners are shareholders in a corporation.
The 80/20 IRS rule that restricted passive income over 20% of a coop’s operating budget in any given year may be why some rental buildings with commercial/retail space converted to condops rather than coops. Many of those condops are run more like coops.
While the 80/20 tax law that affected coops was abolished by President Bush, today there are still new construction projects being built and recently constructed that are currently for sale as condops because there is an underlying mortgage.
A condo can not have an underlying mortgage so several new buildings are “condops” because in the offering plan the developer/sponsor leaves the shareholders/owners with the underlying mortgage. The underlying mortgage is included in the maintenance allocated proportionally to each apartment. The Azure and 1 Carnegie Hill on the Upper East Side are new condops and 305 West 16th street is a brand new luxury designer condop building in Chelsea and there is a new condop in Harlem.
Many condops have right of 1st refusal, they are investor friendly and have the same unlimited sublet policy and amenities usually found in condos.
A condop can offer the best of both worlds. It can offer rules and amenities of a condo, tax deduction, lower closing costs ( no NY state mortgage recording tax) like a coop because a coop is not considered “real property” it is considered “personal property.”