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Michigan Shores Cooperative
Frankfort, Michigan
• Common Questions •
A cooperative member has certain rights and responsibilities. These are outlined
in the cooperative's documents, which include the articles of incorporation, By-Laws,
occupancy agreement, and house rules. A shareholder has a right to elect board members,
remove board members, and amend the bylaws. A shareholder has the responsibility
to pay his/her monthly charges on time as well as follow all other rules and regulations
of the cooperative.
Here are some commonly asked questions from residents in cooperatives:
Q: Do I need homeowners insurance?
A: Yes, you need a special policy (HO-6), which is similar to renter's insurance.
Your co-op generally carries a blanket insurance policy that covers damage to the
cooperative's property from fire, water, or other disasters. However, this policy
generally does not cover any damage to personal belonging inside your unit. Additional
insurance is recommended to cover your personal possessions and for your personal
liability in the event of an accident in your home.
Q: How do property tax deductions work for cooperative homeowners?
A: Co-op residents have the same potential tax benefits as other homeowners, including
taking their share of the mortgage interest and real estate taxes as a deduction
on Schedule A of their 1040 federal income tax return. If your co-op is able to pass
through the deduction, you should receive notification from them of the amount by
January 31st of each year. Section 216 is the section of the Internal Revenue Code
that allows the pass-though of mortgage interest and real property tax deductions
from the cooperative housing corporation to the shareholders.
Q: Do I pay capital gains taxes when I sell my membership/share?
A: By act of Congress, co-op shareholders are treated the same as single family homeowners
when they sell. If your co-op has been your primary residence for two of the five
years prior to selling, the first $250,000 ($500,000 if married) of gain is excluded
from federal income tax. You can use the exclusion more than once. Like single family
homeowners, if, for some reason, you do not meet the residency requirement when you
sell (such as having to sell in the first two years of ownership), you should consult
your tax advisor because you may be liable for taxes on all or a portion of any capital
gain that you realize upon sale. Capital gain is calculated by adding the cost of
capital improvements to the original purchase price, and then subtracting that adjusted
basis from the selling price. Contributions to capital repair reserves are treated
as if they were capital improvements, so keep records of information from the co-op
each year. Tax laws change frequently and are re-interpreted by IRS and the courts
from time to time, so ask your tax advisor for specifics before buying or selling.
Q: What are my rights and responsibilities as a cooperative member?
A: As a democratic organization that follows the cooperative principles, cooperatives
give you a voice in the operation of your co-op. The rights and responsibilities
of shareholders are set forth in the various co-op documents, including the bylaws,
occupancy agreement, and articles of incorporation. All shareholders are entitled
to copies of these documents. You can request them from your co-op's management.
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