President Bush's plan to relieve mortgage debt could be a boon to NYC co-ops. The Mortgage Forgiveness Debt Relief Act of 2007 will allow co-ops to raise rents for their retail tenants, which could bring in more money to pay for staffs, and capital improvements and can lead to reduced monthly maintenance fees, the New York Sun reported.
The federal 80/20 law had mandated that no more than 20 percent of a coops income could come from outside sources including commercial tenants. This law had become a problem for many coops that include retail space in their buildings since retail rents have gone up significantly. Many coops have been renting space to Mom and Pop retailers at low rents to keep the outside income within 20 per cent.
A change in the law modified those rules late last year, and co-op boards can now get high rents for their retail space and use the income for building operations and improvements without losing their coop tax status, the New York Times reported.
Under the new law, co-ops need to pass one of three tests so that shareholders can qualify for tax benefits, including deductions for property taxes and mortgage interest and the right to shield up to $500,000 from capital-gains taxes when the apartment is sold.
The original 80-20 rule is one test. The second requires at least 80 percent of a building's total square footage be available for use for residential purposes by tenant shareholders. And the last is for a co-op to spend at least 90 percent of its total income for the benefit of shareholders.
Coops now only need to show that that a building is 80 per cent residential or that at least 90 percent of the total income benefits shareholders.
When considering purchasing a coop apartment, buildings with good retail tenants will have income from a source other than shareholders. These coops most likely can offer services and improvements without raising maintenance fees or imposing an assesment. And that can translate into higher values for the apartments.
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