Hey everyone. In today's video we will show you how to use the Hauseit co-op maintenance
tax deduction calculator.
I'm Nick at Hauseit, check out our website www.hauseit.com to save money when buying
or selling real estate here in New York City.
So, let's get started.
First things first, if you're not already on the calculator page you can get here by
typing in the following address into your browser, the spelling is up above.
The other way to get here is by visiting www.hauseit.com, scroll to resources, calculators and select
the co-op tax deduction calculator.
The calculator itself allows us to compute two data points.
One is the total annual co-op tax deduction dollar amount and the second item is the tax
deduction percentage also known as the percentage of tax deductibility of monthly maintenance.
We've already done a simple example here and as you can see the total co-op annual tax
deduction amount is calculated by summing up the per share amount of mortgage interest
deduction with the per share amount of real estate tax deduction and multiplying that
by the number of co-op shares owned.
So, it's a simple equation we're basically multiplying three different items together
and that gives us the dollar amount on the top right which is $5,607.
So, if you were filing your income taxes and you qualify for a deduction you would input
$5,607 into your tax return to take advantage of the deduction.
Now, the tax deduction percentage is calculated by taking that 5607 figure and dividing that
by the monthly maintenance, times twelve and that's how we end up with 49.18%.
Now, let's ask a question.
Why do co-op buildings have different percentages of tax deductibility?
Well, the reason is that each co-op has its own unique property tax exposure and its own
unique underlying debt structure or form of financing or other sorts of obligations on
the debt side.
One co-op for example might have similar real estate taxes to another but one of these co-ops
might have a huge loan with high interest rate and perhaps the other co-op doesn't actually
have any debt whatsoever.
So, it makes sense that one them would be paying out more in mortgage interest which
would translate into a higher percentage of co-op tax deductibility of monthly maintenance.
So, you may be asking: where do I find the per share tax deduction amounts for real estate
taxes and mortgage interest?
Well, it's a very simple answer.
Every year as a shareholder the accountant for your co-op will send out a form 1098
and the 1098
provides you with the data points that you need.
In front of us is an example of such a document.
As you can see it gives you a per share amount for real estate taxes and mortgage interest.
Now, there's a whole bunch of other information here which is pretty standard from year to
year.
It's just a bunch of disclosures disclaimers about how all of this works and to certainly
contact your accountant for direct questions but the actual mechanics are very simple.
You take these two numbers here and you dump them into the calculator which we've done
already.
Now if we want to go a step further let's take a look at the actual income statement
of a co-op and try to understand where we see the outflows for mortgage interest and
real estate taxes.
So, here we've taken a few screenshots from real financials for a co-op in lower Manhattan.
The first one we're looking at here is a snapshot of a part of the income statement so you can
see revenue at the top interesting things for you to see our items like the laundry
income.
They have a commercial rent from a building downstairs or rather from a unit downstairs
and in the cost of operations you'll see under taxes that this building pays out a whopping
$1.23 million dollars in taxes on an annual basis.
So, this here the size of that line item is a large determinant of the percentage of co-op
tax deductibility.
Furthermore, under financial expenses we see here that there's an entry for $78,000 so
this doesn't say exactly interest payments but based on the other items in the income
statement.
We think this one is most likely representing what the co-op pays out in mortgage interest
on an annual basis we can learn more about the underlying debt of a bill by looking in
the notes of the financial statement.
So, here we have a snapshot of the notes for mortgage payable and what we see here is that
there is a mortgage of $2.5 million dollars now it also tells us basically the monthly
payment amount but it also tells us the interest rate so that could give you a sense for what
sort of data the co-op is carrying.
If we go further down another snapshot from that same notes, we see that there's also
the line of credit so they have a $1.5 million line of credit and whenever they draw
down the funds the interest rate is one month LIBOR plus 2.75%.
So, there you have it that's really how we understand mechanically why there is a tax
deduction for co-ops, co-op pays out, real estate taxes and mortgage interest and because
the co-op itself is the one who's responsible for paying all interest and all taxes on behalf
of shareholders it only makes sense that the shareholders themselves should receive some
sort of deduction for this outflow.
So, going back to the calculator it's really all you need to calculate the dollar amount
of tax deduction and your percentage of tax deductibility a couple of notes about the
calculator you can email yourself the results you can also print a PDF or save it down and
before we let you go we would love to also remind you that we have a number of other
calculators on the Hauseit website.
Two big ones, one is the buyer closing cost calculator so that is super helpful closing
costs for buyers in the city are really high they're anywhere from 2-6% depending on property
type and whether or not it's new development but this gives you a very nice itemized explanation
of what you might expect to pay and you have similar functionality for emailing it and
saving down a PDF.
We also have the seller closing cost calculator which gives you a nice snapshot into what
you might be paying as a seller here in New York City.
For example, you can customize broker commission amounts hopefully you negotiate those down
you can save up to 6% through a service such as Hauseit's assistive FSBO listing platform
and of course you have other closing costs as well.
You have potential flip tax, you have transfer tax, attorney fees and the like.
So, please keep these in mind as you navigate the rather complex industry which is the New
York City real estate marketplace.
Thank you so much for watching.
I’m Nick at Hauseit, if you have any questions or comments leave us a comment below on this
video or you can send us an email to team@hauseit.com and feel free to give us a shout if you're
looking to buy or sell and you're interested in saving money.
Thanks again for watching, we're going to see you on the next one!