To qualify for the Section 121 exclusion, you must own and use the co-op as your primary residence for at least two of the five years before selling it. This shouldn’t be too, since it is usually used as a primary residence. You can only claim a Section 121 exclusion once every two years.
What expenses can you deduct when calculating co-op capital gains tax?
Specific assessments, capital improvements, and closing costs can be deducted when calculating the taxable gain on the sale of a NYC co-op.
1. Buyer Closing Costs
You can deduct qualifying closing costs incurred when you initially purchased your co-op. Eligible deductions include the Mansion Tax, Mortgage Recording Tax, title insurance, attorney fees, and other purchase-related fees.
2. Capital Improvements
You can add significant renovations or improvements to the property, such as gut-renovating a bathroom to your basis.
3. Building Special Assessments
You might be eligible to deduct specific special assessments the co-op imposes during ownership if they are capital improvements. Capital assessments finance long-term repairs, renovations, or enhancements to the property. These evaluations fund major projects that increase the property’s properties and address significant structural issues.
- Capital assessments may include roof replacements, elevator upgrades, façade repairs, or installing energy-efficient systems. These assessments aim to maintain and enhance the properties and amenities for all residents or owners.
- Operating assessments cover ongoing operational expenses, including routine maintenance, utilities, insurance, management fees, security, landscaping, and other day-to-day operational costs for a building or community. Operating assessments are not typically eligible for tax deductions for capital gains tax purposes.
4. Seller Closing Costs
You can deduct seller closing costs when calculating capital gains taxes. Certain closing costs, like NYC & NYS Transfer Taxes, broker commissions, staging and preparation costs, and co-op flip tax, can be deducted. Including these expenses in the basis calculation reduces the amount of taxable capital gains. A qualifying deduction lowers your capital gains tax liability by increasing the property. Are Federal capital gains taxes when selling an NYC co-op?
- If you owned the NYC co-op for one year or less before selling, any gains from the sale would be considered short-term capital gains and taxed at your ordinary income tax rates, ranging from 10% to 37%.
- If you owned the NYC co-op for more than one year before selling, any gains from the sale would be considered long-term capital gains. Current long-term capital gains tax rates range from 0% to 20%.
- 0% if your taxable income falls within the 10% or 12% tax brackets.
- 15% if your taxable income falls within the 22%, 24%, 32%, or 35% tax brackets.
- 20% if your taxable income falls within the 37% tax bracket.
The Net Investment Income Tax (NIIT) is an additional 3.8% tax applied to capital gains for high-income earners. The income thresholds for NIIT are $200,000 for single filers, $125,000 for married individuals filing separately, and $250,000 for married couples filing jointly.
How much is NY State capital gains tax when selling a NYC co-op?
The capital gains tax rates in New York State are based on your taxable income and are the same as the regular income tax rates.
If you are a resident of New York City, you will be subject to both New York State and New York City income taxes on the capital gains from the sale of your co-op. New York State’s tax is 4% to 10.9%, while New York City has four income tax brackets, ranging from 3.078% to 3.876%.
Calculate the cost basis of a co-op apartment.
The cost basis of a NYC co-op includes the original purchase price of the apartment, plus buyer and seller closing costs and the costs of any capital improvements made during ownership. For example, if you bought a co-op in NYC for $500,000, invested $40,000 in renovations during your ownership, and incurred 10% in buyer and seller closing costs of $50,000, your total cost basis would be $590,000.
- If you sell the co-op for $600,000, your taxable gain would be $10,000.
- If you qualify for the Section 121 home sale exclusion, you will not have any capital gains tax liability since the exclusion amount ($250k or $500k) exceeds the $10,000 gain.
Taxes when you sell a NYC co-op
When selling a co-op in New York City (NYC), you must pay NYC & NYS Transfer Taxes, your co-op’s flip tax, and your co-op’s Transfer Tax.
1. NYC & NYS Transfer Taxes
They are combined NYC and NYS Transfer Taxes for sellers in New York City, ranging from 1.4% to 2.075% of the sale price. Both NYC and New York State impose separate transfer taxes.
2. Co-op Flip Tax
The typical flip tax for co-op apartments in NYC ranges from 1% to 3% of the sale price, usually paid by the seller. The specific flip tax amount varies by building.
3. Stock Transfer Tax
The New York State Stock Transfer Tax is $0.05 per share of stock sold. The number of shares assigned to a co-op unit varies by building and can range from a single share to a few thousand shares. The allocation of shares between apartments varies by co-op.
Therefore, comparing the share count of two apartments in different co-ops does not lead to meaningful conclusions.
4. Additional Seller Closing Costs
Additional seller closing costs in NYC include broker commissions, attorney fees, loan satisfaction fees, and building fees.
