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In preparing our draft 2024 budget, the Treasurer has listed the co-op tax abatement as an expense but not as income. How do other co-ops handle this?
Thank you.
Thank you Steven for this detailed answer. Having served on many BODs over the years, I’m very aware of how the co-op tax assessment can be treated. Some years it was all returned; others we had a special assessment per share. The current BOD is preparing next year’s budget and obviously can’t decide now what to do with the abatement next year. The new Board will decide that.
My question is if the abatement is shown as an expense on an upcoming budget, should it also not be shown as income, balancing each other out.
Thank you.
Hi marym - Thanks for letting me know about your board experience. I tend to assume most members have little board experience.
I checked our most recent audited financials for the answer to your question. Our accountant classifies the abatement as a refund of Real Estate taxes. It is definitely *not* income, which could have tax consequences.
The corresponding shareholder assessment is listed as being used to fund operations.
All of this is handled by our CPA. You might want to check with your co-op attorney to find out how they deal with abatement and assessment
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1) Calculate the *total* dollar amount of the full abatement. Include all abatement components such as R/E tax, STAR credit, and Veterans Credit into this single dollar amount.
2) Divide the total abatement dollar amount by the total number of co-op shares.
3) Board approves a one-time shareholder assessment in the amount of the value calculated in step #2, per share.
No shareholder will receive the exact amount from the abatement that they are being assessed per share. Some will have a net gain and others a net loss.
This is due to the incomparable way the abatements and assessments are calculated. DOF abatements use alchemy and voodoo chants to decide how much each unit (apartment) will receive as an abatement.
On the other hand, the assessment the board authorizes is on a strictly per-share basis. By corporate law, every share in a co-op must be treated equally. Thus each share owned by all the units must be assessed the same amount, to the penny.
For example, lets take Unit 7D which owns 100 shares. The DOF, without any further explanation, sends the managing agent a spreadsheet showing Unit 7D is to receive an abatement total of $900.
After doing the Total-Abatement/Total-Share calculation, the managing agent reports to the board that to break even, an assessment of $10 per share. Doing the calculation:
$10.00 per-share * 100 shares = $1,000 total assessment
we find that Unit 7D will have a net loss of $100 ($1,000 - $900). The owner of Unit 7D's shares will be hopping mad, but there is nothing the board can do. The differential is due to the ways the abatement and the assessment are required to be calculated.
Good luck!
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