SALT & Co-op Stability

Overall federal tax rates has gone down for the same income bracket which partially offsets the elimination of Salt deduction. The impact is 2-3 percent at very high income brackets. At $200k, you may not have any.

Overall federal tax rates have gone down for the same income bracket which partially offsets the elimination of Salt deduction. The impact is 2-3 percent at very high income brackets. At $200k, you may not have any.

The financing requirements associated with Coop purchases should make them relatively safe bets for this sort of thing from a distress standpoint. However, I do think the SALT changes will have a broader impact on the market than many people appreciate. I think it will take a few years and it is possible that changes will be made in the meantime that mitigate that impact.

The risk, as Gov. Cuomo alluded to, is that state and local income taxes may need to go up to make up for any potential deficits in NYS State and NYC budgets. So not only may federal taxes go up, if perhaps only slightly, but SALT are likely to go up as well. In addition, apartment buildings will face increasing operating costs due to potential increases in real estate taxes, insurance and payroll. It will be interesting to see how coop boards handle these pressures especially if they need to refinance their underlying mortgages in a higher interest rate environment. I don't see coop corporations becoming insolvent but I also do not see a likelihood that they will outperform condos or single family homes. At least that's not what historically has happened.

Just to be clear, for many, the tax increases are more than 2-3%. My accountants have already prepared estimates and my rate has gone from 41 to 46%.

Are you talking marginal or overall tax rate as in Federal+State+City+Medicare+Social Security?

With the market going down, once the percentage decrease in the asset value is greater than the building's cash requirement you have a potential issue. I think this is more important than changes due to the tax law because most people's net income will change by a few percentage points and if they want to tighten their purse strings to pay their mortgage and maintenance they will have the ability to do so. But if they don't even want to because the asset is under water, that is when the likelihood of default goes up.
However, Coops are in a much better position to weather the storm when this happens because Coop maintenance is in first position lien wise, whereas Condominium common charges are behind the first mortgage. So when Coop units get foreclosed on, maintenance arrears get paid but when Condo units do the common charges arrears get wiped out.

I'm talking about the overall effective tax rate (not the marginal tax rate).

Anonbk, What tax difference do you get from this? Or does it not work if your income is from capital gain? For W2 income, I believe it does.
https://smartasset.com/taxes/new-york-tax-calculator#4Sf0b37TzE

Also, my tax difference is based on married status.