A co-op is similar to a condominium except rather than owning a piece of physical property you own a share in a corporation. The corporation in turn owns the building you live in, and you get a proprietary lease to live in a specific unit within the building and your share gives you a proportionate interest in the entire property. The lease allows you to live there as long as you own shares and spells out any restrictions on your use of the unit.
As with any corporation, your shares also give you voting rights. Shareholders elect the Board of Directors, who make most of the decisions and manage daily operations or hire staff to do so. The shareholders pay a monthly “maintenance fee” to cover these and other costs. In some cases, the most desirable the unit a shareholder has, the higher the maintenance fee.
Do I buy title insurance on a Co-op purchase?
Because co-op shareholders to not have deeds to their individual units, they do not buy title insurance nor do they generally go through escrow, although they could certainly go through escrow if they wanted to.
Can a co-op owners deduct a portion of property taxes and mortgage interest on their tax returns?
The IRS treats co-op owners just like the owners of a condominium or single-family home. Co-op owners may deduct their portion of the property taxes and mortgage interest paid by the corporation as a whole.
Many cooperative buildings do not allow mortgages on the share (or unit) you purchase. In addition, often the interview and approval process can be grueling. Be prepared to show all you financial, income and expense, details and personal references.
The interview is your chance to interview the Board as well. Use this opportunity to find out as much as you can about the co-op, ask if there are any special assessments in the works, the condition and of the building, and any special restrictions in the building.
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