NY coop apartment - mortg int per coop unit deductible?

Technical topics regarding tax preparation.
#1
mariaku  
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I have never worked with a NY coop before. New client, and it is their 2nd home.

They have an acquisition-debt mortgage on this apartment, and the coop also reports to them the per-unit amount of mortgage interest & property taxes.

They own x units. I see that their previous preparer took those per-unit amounts * x number of units, to determine this 2nd mortgage interest & their property taxes amount. The client states that all mortgage interest, on both their own & the coop's loans) is acquisition as they never cashed out.

Given that I've never seen this per-unit coop reporting system before, I'd like to double-check:

Is it reasonable to deduct (w/i limits) mortgage interest from their 1st mortgage AND from the coop pro-rata share mortgage reported to them?

Thank you for helping me out with your advice.
 

#2
sjrcpa  
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Yes
 

#3
Nilodop  
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Yes and section 216.
 

#4
mariaku  
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How could I verify that the mortgage interest allocated per unit of coop is indeed acquisition debt? It increased last year, and the client has no idea why, and the coop would not give us a coherent answer. Or should we just rely on their reporting, knowing that client never cashed out?

Thank you
 

#5
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mariaku wrote:How could I verify that the mortgage interest allocated per unit of coop is indeed acquisition debt? It increased last year, and the client has no idea why, and the coop would not give us a coherent answer. Or should we just rely on their reporting, knowing that client never cashed out?

Thank you


I believe you are over thinking it. Coop owners will have 2 1098s. One from the coop and one that is their bank.

The coop 1098 is deductible and I have never seen a cash out at the coop level. Normally they have cash flow issues.

Deduct them both and move on is my advice.
 

#6
Nilodop  
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Coop owners will have 2 1098s. One from the coop and one that is their bank. . I had not thought about that. Banks (in my limited experience) are reluctant to lend for the purchase of a coop apartment. The corporation owns the real estate and the occupant lives there on a (very) long term lease, at some nominal "rent". The tax law treats them as owners, and in substance they are. But if a bank lends the occupant-to-be money to buy the coop (which is already subject to a first mortgage), what secures the loan? I guess it's the stock in the coop corporation, and I don't know if that's viewed as a second mortgage or what. As I said, I never thought about that. I do know that in recent years, banks have been more willing to lend money to purchasers of a coop.
 

#7
supdat  
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Both the bank mortgage interest and coop mortgage interest are deductible. Regarding the coop mortgage interest, banks generally will only loan money directly to a coop for the original conversion (usually decades ago) and capital improvements. Of course, you have to include the client's share of the coop mortgage in the calculation of the client's overall mortgage limitation.

Banks (in my limited experience) are reluctant to lend for the purchase of a coop apartment.


When a contract to purchase a coop fails to close, it is usually not because the buyer cannot get a mortgage. If is most often because the coop board has rejected the buyer due to their determination that the buyer does not have adequate income or other resources to cover the monthly carrying costs of the apartment. Coop boards generally have stricter standards then banks. In addition, many coop boards have limits on how much of the purchase can be financed, 80%, 50% and as low as 0% financing in some cases.
 

#8
Nilodop  
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When a contract to purchase a coop fails to close, it is usually not because the buyer cannot get a mortgage.. Yes, I've experienced rejection.

What real estate secures the "mortgage"?

Edit - Never mind. Reg. 1.163-9T(q) covers it just fine.
 

#9
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Nilodop wrote: Coop owners will have 2 1098s. One from the coop and one that is their bank. . I had not thought about that. Banks (in my limited experience) are reluctant to lend for the purchase of a coop apartment. The corporation owns the real estate and the occupant lives there on a (very) long term lease, at some nominal "rent". The tax law treats them as owners, and in substance they are. But if a bank lends the occupant-to-be money to buy the coop (which is already subject to a first mortgage), what secures the loan? I guess it's the stock in the coop corporation, and I don't know if that's viewed as a second mortgage or what. As I said, I never thought about that. I do know that in recent years, banks have been more willing to lend money to purchasers of a coop.


Being a CPA in NYC for many years, I audited co-ops and did tax returns for the coop and many of my clients lived in coops.

The coop has a wrap mortgage securing the building….. each tenant has their own mortgage. The coop dues, include an among that pays the wrap mortgage.
 

#10
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supdat wrote:Both the bank mortgage interest and coop mortgage interest are deductible. Regarding the coop mortgage interest, banks generally will only loan money directly to a coop for the original conversion (usually decades ago) and capital improvements. Of course, you have to include the client's share of the coop mortgage in the calculation of the client's overall mortgage limitation.

Banks (in my limited experience) are reluctant to lend for the purchase of a coop apartment.


When a contract to purchase a coop fails to close, it is usually not because the buyer cannot get a mortgage. If is most often because the coop board has rejected the buyer due to their determination that the buyer does not have adequate income or other resources to cover the monthly carrying costs of the apartment. Coop boards generally have stricter standards then banks. In addition, many coop boards have limits on how much of the purchase can be financed, 80%, 50% and as low as 0% financing in some cases.


Absolutely agreed. It’s a NY thing I suppose. :)
 

#11
Nilodop  
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I lived in a Chicago coop and the only debt possible at the time (1987-1996) was the coop corporation's mortgage on the proerty. Buyers had to pay cash, using an unsecured loan if necessary. No pledge of the coop stock. It may be different now.
 

#12
supdat  
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I lived in a Chicago coop and the only debt possible at the time (1987-1996) was the coop corporation's mortgage on the proerty. Buyers had to pay cash, using an unsecured loan if necessary. No pledge of the coop stock. It may be different now.


1987 was the year of the last real estate crash (before 2008), so that may have had an impact as well. I am sure the finances of many buildings were in trouble, so a bank did not want to be second in line to the coop corporation's mortgage. Recently I have not heard about coop buyers having trouble getting mortgages from banks. The banks are usually relatively easy to deal with. The coop boards, well that is another story. ;-)
 

#13
Nilodop  
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Recently I have not heard about coop buyers having trouble getting mortgages from banks.. Secured by what? Stock in coop.?
 


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