Publication

"Co-op Capital Expenditures: Apartment Tax Basis Adjustments"

Co-op boards help their shareholders with many issues; however, one important benefit which boards should provide—but which many don’t—is facilitating apartment tax basis adjustments for shareholders, ideally on an annual basis. Tax basis in a home, including shares in a co-op apartment, is the purchase price plus the cost of capital improvements. In a co-op, the starting point for an apartment’s basis is the amount paid for the shares in the corporation. When the apartment is sold, the seller must pay taxes on profits over $250,000, or $500,000 if married filing jointly. To determine the amount of profit, subtract the tax basis in the apartment from the sale price. Therefore, as tax basis increases, the amount of taxable gain decreases.

This column discusses co-op building expenditures which are considered capital improvements and are therefore permitted to be used as apartment tax basis increases. There are also recommendations which co-op boards and the corporation’s accountants and its auditors can implement to make it possible/easier for shareholders to capture increases in their apartments’ basis and thus decrease their tax liability on sale.

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