What's the Deal with Flip Taxes?

Aug. 19, 2015 — The building we love has a flip tax. We don't have to pay it now, but if we sell we will. It seems onerous. Can you explain?

To many, it would seem wrong and maybe even unfair to tax the proceeds of a departing shareholder, but consider the following: in many instances, the value of your investment increases over the time of your occupancy.

While most of an apartment's increased value is because of market conditions and improvements within the unit, a good portion is tied into the overall condition of the building. Co-op boards that are diligent in maintaining the assets have added value, too. They have learned to draw capital funds by refinancing their underlying mortgage in a timely manner. The flip tax is another natural revenue stream that allows the cooperative to add to the capital improvement fund without burdening the remaining shareholders.

Peter Lehr is director of management at Kaled Management.