What Is a Co-op Special Assessment in NYC?

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What is a co-op special assessment in New York City? We will demystify this topic in the following video. I'm Nick at Hauseit, visit our website https://www.hauseit.com to learn about ways to reduce your closing cost and save money when buying and selling in New York City. So, let's get started.

A special assessment is an additional temporary charge levied against co-op shareholders to pay for building capital projects or other expenses which are not provision for any buildings regular operating budget. A co-op assessment is usually implemented when there is a specific use of funds in mind such as the restoration of the building facade or roof replacement. The cost of special assessment is allocated to unit owners proportionally based on the number of shares owned. Assessments are usually payable in installments overtime, although it's possible that a co-op may levy an assessment which is payable in a lump sum or an assessment which is ongoing and has no specified ending date.

During the term of an assessment, a co-op shareholder makes two monthly payments: the regular monthly maintenance bill and the assessment payment. Assessments are generally preferable to maintenance increases since the latter are permanent which over time can decrease the value of the apartments relative to those in neighboring buildings with lower carrying costs. Moreover, certain special assessments, unlike ordinary maintenance payments, may be added to the cost basis of an apartment which helps reduce the amount of capital gains tax payable at closing.

What are co-op assessments used for? Well, assessments are typically used to raise necessary funds for specific and costly building improvement projects. The most common reasons for assessments include repairs to expensive components including the facade, roof, elevator and the heating systems. Assessments can also be implemented to pay for aesthetic building upgrades including a lobby renovation, hallway re-carpeting, installation of a roof deck or any other project deemed worthwhile by the co-op building's board of managers and unit owners. Special assessments can be further subdivided into capital assessments as well as operating assessments. The proceeds of capital assessments are used to make long term repair and upgrades to a building while operating assessments are used to fund the on-going operations of a building.

Is a co-op special assessment tax deductible in New York City? It depends. While a capital assessment generally increases your cost basis, reducing your tax bill when it comes time to sell, an operating assessment does not have the same effect. Whatever your building implements on the assessment, we suggest that you save all related documentation and bills. Your accountant will be able to advise you as to which assessments may qualify as an increase to your apartments cost basis.

Is the buyer or seller responsible for paying an assessment? Who's responsible for paying any outstanding assessment is subject to negotiation. If the listing is very competitive and there are multiple offers, asking the seller to cover an assessment will likely be a nonstarter. On the other hand, a seller might be willing to pay some or all of an assessment if the property has been floundering on the market for 6 months or more. The sale contract will specify who is responsible for paying any identified and ongoing assessments. If a new assessment is implemented after a contract has been signed but before closing, the buyer is typically responsible for any assessment payments payable on or after the closing date. As part of your journey's pre-contract due diligence procedure, she or he will review the building minutes and financial statements to see if there's any hints of a contemplated assessment in the near future.

We hope you found this video helpful. I'm Nick at Hauseit. Visit our website https://www.hauseit.com to learn about ways to save money when buying and selling here in New York City. And if you like this video, do us a favor, hit like and subscribe and leave us a comment and we hope to see you on the next one!

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