Do I pay tax when selling a co-op?

Question

When selling a co-op is there sales tax? Income Tax? Is it payable at closing? Please state how you know. Thanks!

Answer 1

The sale of a co-op is treated the same as the sale of any home. Your basis is the cost of your stock in the corporation. The net proceeds on the sale is what you receive for that stock when you sell.

If the co-op was your principal residence for at least 2 of the 5 years immediately prior to the sale you qualify for the exclusion of the gain on the sale just as in a conventional home or condo. The rules are exactly the same.

If you don't qualify for the exclusion on the gain from the sale it's treated as any other capital gain. If you owned it for one year or less, it's taxed at your marginal rate. If you owned it for over one year it's taxed at the lower long-term capital gain rate, normally 15% for most taxpayers.

Any tax is technically due when the gain is realized but as long as you have paid in 100% of the prior years tax liability through withholding or other estimated tax payments you won't be subject to any penalty for underpayment of tax. At the latest you'll have to pay by the filing deadline for the tax return in question.

Normally real estate transactions are not subject to sales tax though a few states do assess an excise tax on real estate transfers; WA is one that does. You'd use that tax to reduce the gain on the sale.