NYC co-op apartment rental & sale

[curiousgeorge]

Hello Tax Experts!

Co-op apartment purchased 10 years ago by father; monthly maintenance bill that includes apartment’s share of real estate tax and mortgage interest on the underlying mortgage of the building – all paid by father and claimed as tax deductions. Co-op stock certificate and proprietary lease are in names of father and son. This was done so that son can can live there.

Your help on below questions, please.
1. Apartment was rented the past 2 years; son did not claim any part of the rental become because he knows he is not really an owner. Can father sell the apartment by himself? Son, knowing he is not a real owner, does not want any part of the sale proceeds.

2. Is the true monthly maintenance expenses [monthly maintenance bill minus (real estate tax + underlying mortgage)] a rental expense that reduces the rental income?

3. For the for the 8-year period that the apartment was used as a personal residence, do the total true monthly maintenance expenses (monthly maintenance bill minus (real estate tax + underlying mortgage), add to the cost basis?

Thanks so much for your kind assistance!

[mwcpa]

"Can father sell the apartment by himself?"

Yes, but son may need to "sign" closing documents as he is legally on the title.

"Is the true monthly maintenance expenses [monthly maintenance bill minus (real estate tax + underlying mortgage)] a rental expense that reduces the rental income"

Yes and no....

For the underlying "maintenance" fee, the "true maintenance" portion is deductible, the real estate tax and interest on the underlying mortgage are also deductible against the rental income.  Sometimes the maintenance includes "amounts" to add to basis... this should be disclosed on a letter from management.

"For the for the 8-year period that the apartment was used as a personal residence, do the total true monthly maintenance expenses (monthly maintenance bill minus (real estate tax + underlying mortgage), add to the cost basis? "

No, but the portion of the maintenance that was disclosed as a capital addition may.

Do not forget, the law requires that basis is adjusted on the sale to be the cost less depreciation that was allowed or allowable during the rental period. 

Also, any "losses" that may not have been allowed in the past, due to the passive loss rules, are "freed" and fully deductible when the asset is sold.

[curiousgeorge]

MW - As always, thanks so much for your kind assistance! May I take this opportunity to wish you a Happy, Healthy 2014!

"Can father sell the apartment by himself?" Yes, but son may need to "sign" closing documents as he is legally on the title.

Indeed, son’s name is on the stock certificate showing him as a joint owner of the co-op corporation shares for the apartment. Son signing closing documents would in essence mean he is a seller also – no? If this is the case, should the ‘income’ (in reality, not his because he has not spent any dime on purchase, maintenance, et al) be on his tax return?

Best regards and have a great day!

[mwcpa]

since the cash proceeds would be traced to the father and since the purchase payment and payment of all expenses could be traced to the father there is no issue of who is due the net proceeds for tax purposes...

[curiousgeorge]

Thanks again MW!

[curiousgeorge]

Hello MW,

In my Jan 13 post I asked "Can father sell the apartment by himself?"

Your answer -  "Yes, but son may need to "sign" closing documents as he is legally on the title."

Does the apartment corporation submit a 1099-S on the sale?  If so, would it make sense to have the transfer agent (apartment corp) name only the father as the transferror?
(Note:  All the 1098s in past 10 years have been in father's name only.

Thanks again.

[mwcpa]

The coop does not issue the sale statement called 1099S as they are not the buyer or seller.  

The son's signature is more than likely required for legal purposes (nothing to do with tax) to complete the contract and sale as he is named as an owner, even though he is not in reality.  Moving the asset now and then selling may lead to unneeded paper work and lead to delays.

You detail the financial dealings as only involving the father... the son was only named so he could live their for a short period of time... the son never paid a dime, the son never collected a dime.... Dad paid for and collected everything... as long as you can support that (if IRS asks) you will have no issues....

[curiousgeorge]

Good morning MW,

You are exactly right of course that moving the asset now is not effective. Yes, financial dealings only involved the father and can be supported (if IRS asks).

Who submits the 1099-S then? As outlined in www.irs.gov/pub/irs-prior/i1099s--2013.pdf, the  person responsible for closing the transaction is required to file Form 1099-S.
 
The closing is done by the Closing & Transfer department of the management company that manages the co-op owners corp. Does this not imply that they are responsible for the closing and therefore required to submit 1099-S? If not, who would? Dad, the transferror? Dad’s (seller’s) lawyer at closing?
By the way, what is the penalty for non-submission of the 1099-S?

As always, many thanks for your kind assistance/guidance.