Know What a Co-op Is

02/05/2013 09:00


The cooperative is the older form of ownership, found mainly in New York City, Chicago, and a few other areas. The owner of a co-op does not own any real estate. Rather, the buyer receives two things: (1) shares in a corporation that owns the entire building and (2) a proprietary lease for the particular living unit being bought.
These shares and the lease are classified not as real estate but as personal property. They may be borrowed against, however, to assist with the purchase, and the IRS will treat the loan as if it were a mortgage. The owner of a co-op does not owe any property tax on the individual living unit. Instead, the monthly payment includes a share of taxes paid by the cooperative on the entire building. It also includes a share of the cooperative's payment on the one large mortgage on the entire building, as well as the usual maintenance costs.
Tenant-owners in a cooperative building depend on each other for financial stability. For that reason, most co-ops require that prospective buyers be approved by the board of directors.
Because a large part of the monthly charge goes toward property taxes and interest on the underlying mortgage, the prospective buyer can expect a certain percentage of that expenditure to be income tax deductible at the end of the year. If you are interested in a cooperative, you will be told what percent of the monthly charge is deductible. Inquire also about the dollar amount of liability you will be taking on for your share of the existing mortgage on the whole building. This will be in addition to any loan you place to buy your shares.
The term condominium describes a form of ownership, rather than as is usually assumed an apartment. The buyer of a condominium receives a deed and owns real estate, just as a single house would be owned, In the case of a condominium, the buyer receives complete title to the interior of the apartment (from the plaster in) and also to a percentage of the common elements the land itself, staircases, sidewalks, swimming pool, driveways, lawns, elevators, roofs, and heating systems.
The condominium is classified as real estate, and the buyer may place a mortgage on the property and will receive an individual tax bill for the one unit. In addition, monthly fees are levied to pay for outside maintenance, repairs, landscaping or snow removal, quality eco products,  recreation facilities, and the like.
Townhouse ownership is a hybrid form of condominium and/ or cooperative and can take many forms. Typically, the unit owner has fee simple (complete) ownership of the living space and the land below it, with some form of group ownership of common areas. The individual may or may not own a small patio or front area and may or may not own the roof above the unit.