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  Living in a Housing Cooperative

  *Provided by: The National Association of Housing Cooperatives

  Living in a Housing Cooperative

  As a cooperative homeowner, you have certain rights and responsibilities.

  These are outlined in your cooperative's documents, which typically include

  the articles of incorporation, bylaws, proprietary lease or occupancy agreement,

   subscription agreement, and house rules. As a shareholder, you have a right to elect

   board members, to remove board members, and to amend the bylaws. You also have

   the responsibility to pay your monthly charges on time as well as follow all other

  rules and regulations of the cooperative.

  Here are some commonly asked questions from residents in housing cooperatives:

·         Do I need homeowners insurance?

Yes, you need a special policy (HO-6), which is similar to renter's insurance.

Your co-op generally carries a blanket insurance policy that covers damage to

the cooperative's property from fire, water, or other disasters. However, this

policy generally does not cover any damage to personal belonging inside your unit.

Additional insurance is recommended to cover your personal possessions and

for your personal liability in the event of an accident in your home.

·         How do property tax deductions work for cooperative homeowners?

Co-op housing residents have the same potential tax benefits as other homeowners,

including taking their share of the mortgage interest and real estate taxes as a

deduction on Schedule A of their 1040 federal income tax return. The deduction

can be substantial, but only if your co-op is able to pass the deduction on to

its members (complicated rules apply to co-ops with substantial commercial income),

and you itemize your deductions on your tax return. If your co-op is able to

pass through the deduction, you should receive notification from them of the

amount by January 31st of each year. Section 216 is the section of the Internal

Revenue Code that allows the pass-though of mortgage interest and real property

tax deductions from the cooperative housing corporation to the shareholders. You can

find more information about it on the IRS website.

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

By act of Congress, co-op shareholders are treated the same as single family

homeowners when they sell. If your co-op has been your primary residence for

two of the five years prior to selling, the first $250,000 ($500,000 if 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 co-op 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.

·         Can I rent out my unit?

Some co-ops are generous in allowing subletting, but most cooperatives severely

restrict subletting in order to preserve the owner/occupant character of the

community. Co-ops that do allow subletting often have restrictions on the

length of time for which you may sublet. Be sure to check what the policy

of your co-op is. The policy can usually be found in your occupancy agreement

or proprietary lease.

·         What are my rights and responsibilities as a cooperative member?

As a democratic organization that follows the cooperative principles, cooperatives

give you a voice in the operation of your co-op. The rights and responsibilities of

shareholders are set forth in the various co-op documents, including the bylaws,

occupancy agreement/proprietary lease, and articles of incorporation. All shareholders

are entitled to copies of these documents. You can request them from your co-op's

office or from your co-op's management. If the co-op doesn't have a manager, ask

the president or secretary.

  *Provided by: The National Association of Housing Cooperatives