jmood

Does anyone know whether the US Coop or Condo is considered akin to to the UK Leasehold and/or the Leashold with share of Freehold? This is for tax purposes but business-wise it should be the same logic.

Definitions from the IRS:
Condo: You own a share of the common elements of the building such as lobbies, elevators, service areas. You and other owners may pay dues or assessments to a special corporation that is organized to take care of the common elements.
This sounds la bit like like Leasehold with share of Freehold to me. Except this definition does not include any ownership definition even by a share, of the apartment one lives in.

Co-op: You do not own your apartment. Instead a corporation owns the apartments and you are a tenant-stockholder in the cooperative housing corporation. You pay maintenance fees to the coop housing corporation.
This also sounds like the Leasehold with share of Freehold to me.

UK definition of Leasehold with share of Freehold (as I understand it): An LLC company owns the freehold to the building. The LLC issues as many shares as there are residential units. Each unit can buy 1 share of the LLC and together with the share it issues a "lease" to the owner of the share. It is up to the LLC to decide for how many years this lease is issued. Some issue them for 999 years which effectively make them as an outright freehold because it won't expire. If they are issued for 99 years, the remaining time of the lease gets shorter and the re-sale value of the property diminishes over time, but the "Freeholder" has discretion to issue a longer lease for a cost. The latter probably has regulations attached but that is irrelevant here.

So any thoughts on how they compare and how the IRS would see it? Thanks.

Michael

A co-op and a leasehold are not the same. Although essentially you do not own the unit in the co-op, you own a share and you'll always own that share until you sell it. Think of a co-op a similar to a share in a company stock where you don't own a specific piece of the company but you do own part of the company. A condo is different in that you own a specific piece of the building. A leasehold is different also since the term of the lease can expire.

jmood

OK. So are you saying that a UK Leasehold with Share of Freehold would be treated like a Condo by the IRS?

Michael

I didn't know that the IRS treated a condo, co-op, a house, or a leasehold differently. What specific IRS rule are you concerned about?

jmood

It does, which is why I asked my original question.

Publication 527, page 15. But your question might not be relevant to the answer to my question.

Michael

I'm not sure I see any differences from a tax point of view except possibly special assessments for a condo can't be deducted. What are you concerned about?

jmood

Michael, your questions have nothing to do with helping figure out the answer to my question. Thank you for trying to answer and help. But you really haven't even touched on my question. Sorry if my question got hidden within my blurb.
And yes, there are differences, otherwise it would not be outlined in publication 527 as I already mentioned.



My question again is:
UK Leasehold & Leasehold with share of Freehold - how would these be treated by IRS. Would they be treated by Condo rules or Coop rules? Or other rules?

Pulaski

Functionally a condo is equivalent to leasehold: you buy the building without direct ownership of the land under the building or responsibility for the exterior shell (brick/siding or roof). I think with a condo you always own a share of the freehold, so your guess would IMO be correct, that a leasehold with share of freehold is equivalent to a condo. If there is no IRS guide to leasehold, I would use the "condo with share of freehold" rules. ..... The only wrinkle would be if the unelapsed period of the leasehold was very short (less than 40 years).

There is no UK equivalent to a co-op in the US, where you are a shareholder in a corporation that owns an apartment building, in which you have the right to occupy one unit.

Michael

In a condo, 100% of the dues go toward maintenance (common ground maintenance, hazard insurance, management, etc.) and if the same occurs for a leasehold, then I agree.

In my opinion, pub 527 is trying to indicate that may not be the case for co-ops and therefore you have to figure out what part of the fees are for maintenance.

Pulaski

"With a share of freehold", yes.

In the UK it is possible to invest in freeholds, then the freehold owner collects a "ground rent", usually just a few hundred GBP/yr aggregate for a duplex or quadplex, but freehold owner becomes the de facto property manager and collects both money to cover the cost of ongoing repairs and maintenance, and insurance of the structure, but as with a condo, money is also accumulated in a sinking fund to cover major repairs such as replacing the roof.

I know that European legislation a decade or so back skewed things in favour of the occupiers buying the freehold, but it used to be a common "hobby" for small accountants to buy freeholds, and the gross yield on them used to be about 25% back in the late 80's/ early 90's.

Michael

Thanks, now I understand. I previously didn't know what "leasehold with share of freehold" meant so that should be similar to a condo.

jmood

So, Pulaski, what are you saying should be the treatment for ground rent?

Ground rent is paid both for when it is only a Leashold and when it is Leashold with share of Freehold. In the latter the ground rent covers the running expenses of the Freehold company, which in my mind are no different than maintenance expenses of the building.

Pulaski

Traditionally ground rent is only the rent paid to the frehold owner for occupying the land he owns the title to. Not that it really matters for IRS/ tax purposes, because so long as whatever you pay, whether it be "true" gound rent, or other fees assessed against the leaseholders, it is ALL equivalent to condo fees in the US.

S Folinsky

OP is asking a fairly "sophisticated" tax question. [I put "sophisticated" in quotes because that word is often used for issues where a high degree of knowledge is present or required].

First a general point -- IRS Publications are NOT legal authority which can be cited; they are "guidance" as to what the law is. Commerce Clearing House [aka "CCH"] is a legal publisher which makes a fair amount of money off of providing tax libraries to tax professionals. They HAVE put on-line a brief discussion of the various sources of tax law at this link.

BTW, I see that OP did not quote the IRS discussion of condominium and this misquote lead to a misunderstanding.

I have a rudimentary understanding of the concepts involved in this thread and I can say that much in the way of the discussion here is in error. The only reason I will not describe it is that it would be a very long post indeed. However, I will say that one overriding principle is that a freehold in land is NOT a depreciable asset.

OP may want to consult with a knowledgeable tax professional.

S Folinsky

BTW, long term land leases do exist in the US, they are just not that common in most of the country.