Capital Gains Tax On Home Sale

cuegis

LoanSafe Member
Hi,
I purchased a co op in NYC in 1991 for $1 00,000.
I'm selling it in 2016 for around $1.7

This is what I'm (tax) planning so far.
I have the standard deduction for Primary residence for a single person of $250,000
I have a long term capital loss of $450,000
In the case of a co op, to raise your basis price, not only are renovations and improvements that are made to your individual apartment costs that will raise your basis price but.......

Since, in a co op, you are an owner of the entire building then all of the same things that were done to the building also can be added to your basis (ex. $2 million for 5 new elevator cars causing a special assessment, and any other similar renovations/improvements).

I was told that any payments toward paying down the buildings mortgage can also be added to your basis.

But, I have been unemployed for the past few years leading up to and including the year of the home sale so my "income tax bracket" is 0%.

I just read this information and want to know if it is true...


"Calculating the tax

Once you know the amount of the gain, you need to know the tax rates that apply. Three different rates exist on long-term capital gains, and which one is right for you depends on what tax bracket you're in:

  • If you're in the 10% or 15% tax bracket for ordinary income, then your long-term capital gains rate is 0%."

Is this true? Is the capital gains that will be due on the sale of my home 0% because of my tax bracket for "Ordinary Income?"
 

Moe Bedard

Call 1-800-779-4547
Staff member
Loan Safe Mortgage
Hello cuegis,

Taxes can get real confusing for us layman. There is not much information online in regards to taxes and coops. But my understanding is that any gains made on the sale will be considered income in 2016 and change your tax bracket regardless if you have a job and or other income. The only way to avoid that would be a 1031 tax exchange. As you know, we are not tax professionals and it is best to consult with one.

Here is what the National Association of Housing Cooperatives says:

Am I responsible for capital gains taxes when I sell my membership/share?

By act of Congress, cooperative shareholders are treated the same as single family homeowners when they sell. If your cooperative has been your primary residence for two of the five years prior to selling, the first $250,000 ($500,000 if the owner is married) of gain is excluded from federal income tax. You can use the exclusion more than once.

Like single family homeowners, if, for some reason, you do not meet the residency requirement when you sell (such as having to sell in the first two years of ownership), you should consult your tax advisor because you may be liable for taxes on all or a portion of any capital gain that you realize upon sale. Capital gain is calculated by adding the cost of capital improvements to the original purchase price, and then subtracting that adjusted basis from the selling price. Contributions to capital repair reserves are treated as if they were capital improvements, so keep records of information from the cooperative each year. Tax laws change frequently and are re-interpreted by IRS and the courts from time to time, so ask your tax advisor for specifics before buying or selling.

Link: http://coophousing.org/resources/living-in-a-cooperative/living-in-a-housing-cooperative/

Here is what the IRS says in regards to coops:

Special Rules for Cooperatives

If you own a cooperative apartment, some special rules apply to you, though you generally receive the same tax treatment as other homeowners. As an owner of a cooperative apartment, you own shares of stock in a corporation that owns or leases housing facilities. You can deduct your share of the corporation's deductible real estate taxes if the cooperative housing corporation meets the following conditions:

  1. The corporation has only one class of stock outstanding,

  2. Each stockholder, solely because of ownership of the stock, can live in a house, apartment, or house trailer owned or leased by the corporation,

  3. No stockholder can receive any distribution out of capital, except on a partial or complete liquidation of the corporation, and

  4. At least one of the following:
    1. At least 80% of the corporation's gross income for the tax year was paid by the tenant-stockholders. For this purpose, gross income means all income received during the entire tax year, including any received before the corporation changed to cooperative ownership.

    2. At least 80% of the total square footage of the corporation's property must be available for use by the tenant-stockholders during the entire tax year.

    3. At least 90% of the expenditures paid or incurred by the corporation were used for the acquisition, construction, management, maintenance, or care of the property for the benefit of the tenant-shareholders during the entire tax year.

Tenant-stockholders. A tenant-stockholder can be any entity (such as a corporation, trust, estate, partnership, or association) as well as an individual. The tenant-stockholder does not have to live in any of the cooperative's dwelling units. The units that the tenant-stockholder has the right to occupy can be rented to others.


Deductible taxes. You figure your share of real estate taxes in the following way.
  1. Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation.

  2. Multiply the corporation's deductible real estate taxes by the number you figured in (1). This is your share of the real estate taxes.
Generally, the corporation will tell you your share of its real estate tax. This is the amount you can deduct if it reasonably reflects the cost of real estate taxes for your dwelling unit.

Refund of real estate taxes. If the corporation receives a refund of real estate taxes it paid in an earlier year, it must reduce the amount of real estate taxes paid this year when it allocates the tax expense to you. Your deduction for real estate taxes the corporation paid this year is reduced by your share of the refund the corporation received.
 

cuegis

LoanSafe Member
Hi,
I REALLY appreciate the research that you went through to give me your response.
As you said.."it is very complicated" and I am on the warpath to figure it all out..which will ultimately get me to the best accountant, who specializes in this area, as soon as possible but, in the meantime, I have to give ALOT of significance to what I found , written on the IRS website...

" if your tax bracket is 10-15% then your long term capital gains tax rate is 0%"...
The next line says...
"This provision was made PERMANENT by the "American Tax Relief Act of 2012"

So, as for "2016"...I have to go with "permanent" means "permanent"!

But, I will get an "official" answer in the next few days.

I'll keep you posted.
Once again...thank you for your response.
 

Moe Bedard

Call 1-800-779-4547
Staff member
Loan Safe Mortgage
You are very welcome and I hope this all works out for you. Please let us know if you get a final and concrete answer on these questions because it will help others in the future.
 

cuegis

LoanSafe Member
Thank you once again.
I did look into a 1031 swap a few months ago but, even though I could have possibly done that, it really only works if you are either swapping for something of equal or greater value.

In my case, I am downsizing.
I'm taking advantage of my building being at new, historical highs, to hopefully sell at, or near, a short term top.

This will then allow me to fully pay off all mortgages and buy something hopefully within just a few blocks, for 100% cash (no mortgage) and a low monthly maintenance ...like $500/month.

It puts me in a great position to be 100% debt free, own my home free and clear, and, in the middle of Manhattan, have total monthly housing costs of $500.

Even with the Hamp and Hamp 2MP on my Heloc (averaging out at 1% and 2%) , I currently am paying over $5000/month to continue living where I am.

I have been there 38 years so, emotionally it is going to been painful to move which is why I am looking to buy as close as possible so I can still feel, at least a little bit, like I am still "home"!

And, if I get really lucky, we may see a correction in NYC home prices with alot of inventory coming on the market and now reaching 7 years since the last recession.....maybe we might shift to a "buyers" market over the next year+
 
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