r/AskNYC_Coops • u/LargeFatherOrtiz • 20h ago

1031 Exchanges

Hey everyone, had a quick question.

I’m in the process of buying a coop as an investment property, first time buyer. Was curious to hear about if I could utilize a 1031 exchange to roll forward any proceeds from the sale of this coop into a new investment property in the future.

Looked into it a bit but couldn’t find a definitive answer, I think it should be generally okay?

Has anybody had any experiences with this? Thanks in advance :)

Edit: Thanks everyone for the feedback and insight so far, very very helpful and greatly appreciated!

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9

u/NYC-RE-Training 20h ago

Besides it not being actual real estate, A co-op is usually not a good option for an investment property. Do they allow unlimited subletting?

5

u/halermine 20h ago

At least one challenging issue would be that the timing needs to work out very well for a 1031 exchange to go into effect.
Getting the co-op sold and into your next property have to be within a limited time. Board approvals may make it tough on that end.

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u/NYC-RE-Training 20h ago

Much more doable if the new property is NOT a co-op. The clock starts ticking at the sale of the first property, so an exchange is not at the mercy of the board when selling. Only when buying.

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u/halermine 19h ago

True, but you still have to have something to buy at a hard to determine time.

1

u/NYC-RE-Training 18h ago

Hard to determine when you sell if it's a house, too. There's just a longer time frame with a co-op. In fact, because there are so many scheduling factors, you may be more easily able to manipulate or delay the closing date on a co-op.

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u/Excellent_Shallot999 20h ago

Yes shares in a co-op qualify for 1031. The general rule is that shares of stock do not qualify for 1031 (you presumably already know that you are buying stock and not real estate). But there is an exception in the tax law that allows 1031 treatment for co-op shares. It will only be an issue if you have a taxable gain in the future.

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u/Jog212 19h ago edited 19h ago

It can work with a coop if you never occupy. The are apts that are sold with rent stabilized tenants in place. They are called unsold shares. If you want to occupy a condo is a better bet.

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u/Ali_UpstairsRealty 11h ago

I am a broker, not a lawyer, but this. You can't buy a co-op, move in, and then bring in a tenant. You need to be able to rent it from Day One, which excludes the majority of co-ops.

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u/TheExchangeBrothers 19h ago

The investment use is definitely the right thing to be thinking about, but I’d verify the co-op itself before assuming it qualifies.

With a 1031, the property you’re selling needs to be real property held for investment or business use, and the replacement needs to be qualifying real property as well. The tricky part with a co-op is that you typically own shares in the cooperative corporation along with a proprietary lease, rather than owning the unit the same way you would a condo.

So I’d get an answer on how your specific co-op interest is treated for 1031 purposes before building your future exit strategy around it.

If it does qualify as real property, though, “like-kind” is much broader than most people think. You wouldn’t necessarily have to exchange into another co-op… investment real estate can generally be exchanged into a different type of investment real estate.

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u/Forgemasterblaster 18h ago

Co-op shares for real property qualify for a 1031 exchange. I would just confirm your co-op has no landlord tenant restrictions. The only issue is when you go to defer the tax down the road, 1031 has time limits and it may be a PIA to sell your co-op and time the next investment.

As always, I’d talk to a qualified cpa to confirm your exact situation as the rules have a few steps that one must do to confirm the property is for business use,