The exchange of shares for a deed raises a real tax question.
Nothing on this page is advice about your own unit, and your own accountant or tax adviser has the last word on it.
Shareholders ask the tax question before they ask what their unit would be worth, and boards hear it at the first meeting they hold on the subject. It is the right thing to ask early, because a conversion that left a household with a bill it could not meet would not be worth studying. This page sets out what the question is, how a Hutton conversion is built to meet it, and where the answer for a particular household belongs.
The question
Tax law can treat the exchange as a taxable event even though nobody is paid.
Converting a co-op to a condominium raises a real tax question, sometimes called "phantom gain": shareholders exchange shares and a proprietary lease for a condominium deed, and tax law can treat that exchange as a taxable event even though no shareholder receives cash. That is the question this page is about, and the rest of the page follows from how it is answered.
How a conversion is structured
Every Hutton conversion is built around that question.
Every Hutton conversion is structured through what we call our stepped process, developed specifically to address that question. It is built so that an owner-occupant converting their own home comes through the conversion without a capital gains bill, and across more than thirty years and more than 5,000 converted units, the IRS has never contested the treatment. What applies to your unit depends on how you hold it and how long you've held it, which is exactly what we walk every shareholder through one-on-one before any vote.
Two levels
The stepped process answers the question at both levels.
There are potentially two levels of federal taxation involved, the corporation's and the individual shareholder's, and they do not behave the same way. That methodology addresses the question at both levels the tax code raises it: the corporation's treatment of units held by shareholders who do not live in them, and the individual shareholder's treatment of the exchange itself. How it is done belongs inside an engagement, and nothing here is a promise about anybody's own return.
Your own adviser
Your accountant has the last word on your own return.
We advise every shareholder to obtain separate and independent advice from their own accountant or tax advisor, and we say so before a vote instead of after one. We are not your accountant and we are not your tax attorney, and nothing on this page should be read as tax advice for your situation. We structure conversions, and we can tell you in general terms what kinds of questions shareholders in our conversions have put to their own advisors. Your accountant will still have the last word on your own return.
Where to read next
The short answer, and the other three questions.
Our FAQ page on the tax implications of converting a co-op to a condo gives the short answer in one screen, and it links back here. The property tax page follows the real estate tax bill from the corporation to the individual owner, the investor-held units page takes the units nobody lives in, and the state page sets out what New York, New Jersey, California and Florida charge when a deed is recorded. We can begin with a feasibility study of your cooperative at no cost or obligation to your board or your members, and discussing the tax implications is part of what that study does. To get started, engage with a Hutton representative: request the free feasibility study, or ask for a follow-up phone call.
One bill to the corporation becomes a bill to each owner.
Nothing on this page is advice about your own unit, and your own accountant or tax adviser has the last word on it.
Shareholders who have never seen a real estate tax bill in their own name want to know what arrives in the post after a conversion, and how much of it is new. This page gives the general rule for each form of ownership, then the provisions four states have written down, and it stops where they stop.
Before a conversion
The corporation is assessed, and the bill reaches you through maintenance.
Where a cooperative building is assessed and billed for real estate tax as one property, the corporation divides that bill among its shareholders through the monthly maintenance charge. New York City states that as its method: a cooperative building is given one market value for the whole building, and a condominium building's value is allocated to each unit. For a shareholder's own federal return the Internal Revenue Service states the computation plainly: the shares held over the total shares outstanding, applied to the corporation's deductible real estate taxes. Florida is the exception among the four states below, because its own statutes assess each cooperative parcel separately. That is the general rule and not advice about any building, and the figure for your own household is your accountant's to compute.
After a conversion
Each unit is assessed on its own and billed in its owner's name.
After a conversion each condominium unit is assessed on its own, and its owner receives a tax bill in their own name. New York writes that rule into its Real Property Law, which deems each unit and its common interest a parcel for assessment and taxation. New Jersey's Condominium Act states it as well, requiring that every unit be assessed and collected on as a single parcel and that the lien reach that unit and no other part of the building. California requires the same once a property has been divided into condominiums, with the tax on each one a lien solely on that condominium. Florida writes the rule twice, once for condominium parcels and once for cooperative parcels, in nearly the same words.
The cooperative side
How a cooperative building is billed depends on the state.
Florida is the one of these four states whose statutes assess a cooperative parcel separately by name, in the same terms it uses for a condominium parcel. New Jersey's statute books state the separate-parcel rule for the condominium form, and how a cooperative building is billed in a given municipality is a question for that municipality's assessor and for your own adviser. Common areas owned by an association or jointly by the owners are not separately taxed in Florida, and a New Jersey condominium lien attaches to the unit assessed and to nothing else.
Abatements and exemptions
The programs that exist reach both forms, on their own conditions.
New York City's cooperative and condominium tax abatement applies to both forms on the same terms, and a building's board, not an individual owner, applies for it. That abatement asks that the owner use the unit as a primary residence and hold no more than three units in the building, and it excludes buildings already receiving certain other city benefits. New York's STAR benefit is open to condominium and cooperative owners alike, subject to the same income limits either way.
California gives a homeowners' exemption against the full value of the dwelling, and its statute names both a condominium occupied by its owner and the premises a cooperative shareholder occupies as a principal residence. What that exemption is worth in a given year is for the county assessor and your own adviser. Florida's homestead exemption reaches both forms as well, because a cooperative tenant-stockholder entitled to occupy an apartment is deemed to hold beneficial title in equity to it for homestead purposes. The amount a particular Florida unit is allowed is for the property appraiser and your own adviser, because the homestead statute states its figures in more than one place.
Reassessment
Whether the conversion itself causes a reassessment is a state question.
California's own tax regulator has said that converting a cooperative building's units into condominiums, where each owner keeps the unit they already held, is a change in how title is held and not a change in ownership for property tax purposes. The annotation states that its views are advisory only and bind no county assessor, and it was written in 1991. Whether the assessor who bills your own building follows it is a question for that assessor and for your counsel. In New York and in Florida the same question belongs to the assessing authority and to your own adviser, and this page does not answer it.
Your own bill
Your own bill is a matter for you and your adviser.
We advise every shareholder to obtain separate and independent advice from their own accountant or tax advisor, and we say so before a vote instead of after one. Nothing above is advice about a particular building or a particular unit, and the programs named here carry conditions and dollar figures that the states change from year to year. To get started, engage with a Hutton representative: request the free feasibility study, or ask for a follow-up phone call.
A unit that is not somebody's home sits differently in the tax code.
Nothing on this page is advice about your own unit, and your own accountant or tax adviser has the last word on it.
Where a shareholder holds a unit and does not live in it, the tax question a conversion raises is not the one an owner-occupant asks, and the code itself draws that line. What can be said about those units in public is general, and the rest belongs with that owner's own counsel and accountant.
Where the code draws the line
The exchange is treated differently where the unit is not a principal residence.
For a shareholder who lives in the unit, Internal Revenue Code section 216(e) provides that no gain or loss shall be recognized at the corporate level on the distribution by a cooperative housing corporation of a dwelling unit to a shareholder, where that distribution is in exchange for the shareholder's stock in the corporation and the unit is used as his principal residence. The implication of the same provision is that the cooperative corporation will have to recognize a gain or loss on the distribution of a unit to a shareholder who does not use it as a primary residence. That lands on the corporation before it lands on any individual, so which of your units are homes and which are held some other way is a fact your board needs before a vote and not after one.
The corporate-level question
The stepped process was developed against exactly this.
That corporate-level question is the one the stepped process addresses for non-occupant owners. The way it does that is not published, and nothing here is a promise about any particular owner's return.
The deduction
The share-based deduction is stated for homeowners, and your case is yours.
The deduction a cooperative shareholder takes for a share of the corporation's real estate taxes and mortgage interest is set out by the Internal Revenue Service in its guidance for homeowners, apportioned by that shareholder's own shares over the shares outstanding. Whether and how that computation reaches a unit its holder does not occupy turns on facts that guidance does not settle, and it is a question for that owner's own tax adviser.
Exchange treatment
Whether an investment unit can be exchanged is your counsel's question.
The federal code also provides for an exchange of property held for use in a trade or business or for investment, and the Internal Revenue Service states that property used primarily for personal use, such as a primary residence, does not qualify. Whether that treatment could reach a unit a shareholder holds as an investment and not as a home, and what it would take to use it, is a question for that shareholder's own counsel and tax adviser.
Units held some other way
The answer for a unit like yours is your adviser's to give.
What applies to your unit depends on how you hold it and how long you've held it, which is exactly what we walk every shareholder through one-on-one before any vote. Nothing on this page should be read as tax advice for your situation. To get started, engage with a Hutton representative: request the free feasibility study, or ask for a follow-up phone call.
What a state charges at recording is its own question.
Nothing on this page is advice about your own unit, and your own accountant or tax adviser has the last word on it.
A board that has settled the federal question still has a state one, because the charge that falls when a deed is recorded is set by the state and not by the code. The four states below are the ones where the rules have been read against a conversion of this kind, and they do not answer alike. Each section gives the transfer or recording position first, then what that state writes about assessing the unit afterwards.
New York
Shares are taxed like a deed, and the mortgage tax arrives with the mortgage.
In New York every transfer of cooperative shares, from the first grant to every resale after it, is taxed the same way a deed to real property would be. The statute measures the consideration for a unit-level transfer without the liens against the shares that stay outstanding, and it credits tax already paid on the conveyance to the cooperative corporation itself, apportioned by shares. Once a unit is a condominium and its owner takes a mortgage secured by the deed, New York's mortgage recording tax applies to that mortgage on the same terms as any other mortgage on real property in the state. New York's Real Property Law then puts each unit and its common interest on the rolls as a parcel of its own.
New Jersey
The transfer fee statute names this exact transaction and exempts it.
New Jersey's own transfer fee statute names this exact transaction and exempts it: a deed from a cooperative corporation to a shareholder, given as part of converting the building to a condominium, in exchange for that shareholder surrendering their stock and their proprietary lease. Outside that exemption, New Jersey's realty transfer fee is paid by the seller at recording and rises in steps as the price of the property rises. Which paragraph of the statute carries the conversion exemption is worth confirming with counsel, because the section has been renumbered over the years, and the Division of Taxation's own page is the wording to work from. New Jersey then assesses each condominium unit as its own parcel under its Condominium Act.
California
The regulator has spoken on reassessment, and not on the recording charge.
California charges a documentary transfer tax when a deed is recorded, calculated on the value of the property and collected by the county recorder, and a city may add its own charge on top of the county's. Whether a deed from a cooperative corporation to its own shareholders falls inside one of that tax's exemptions is a question for California counsel, and a favourable answer on property tax does not settle it, because the two taxes are governed by different parts of the code and different tests. For property tax the State Board of Equalization's published annotation treats the transfer of units from a cooperative housing corporation to its shareholder occupants as leaving the proportional ownership interests unchanged, and reads that as excluded from reassessment. The Board states in that 1991 letter that its views are advisory only and bind no county assessor, so the county that bills your building is the one to ask. Once the property has been divided into condominiums, each one owned in fee is separately assessed to its owner.
Florida
The deed tax is the open question, and counsel should have it early.
In Florida's 2025 statutes a deed is taxed at seventy cents for every hundred dollars of what is paid for the property, and the statute counts a mortgage the buyer takes over as part of that price. Whether a deed given to a shareholder on the surrender of their shares is exempt from that tax is a question for Florida counsel, and it should be asked before a plan is set, because the statute's own account of what counts as the price is broad. Florida has no separate tax on recording a mortgage the way New York does, and its closest equivalent is a smaller stamp tax on the promissory note itself. Florida then assesses both forms separately by statute, a condominium parcel under one chapter and a cooperative parcel under another.
Your own building
Your state's answer is your own counsel's to give.
We advise every shareholder to obtain separate and independent advice from their own accountant or tax advisor, and we say so before a vote instead of after one. States outside these four are not covered here, and nothing above is advice about a particular building, a particular deed or a particular unit. A feasibility study reads a building's own documents as to the legal requirements for shareholder approval, and the state questions above are ones your counsel answers alongside it. To get started, engage with a Hutton representative: request the free feasibility study, or ask for a follow-up phone call.
None of these pages is advice about your own unit, and what applies to yours is for your own tax adviser to confirm. To get started, engage with a Hutton representative: request the free feasibility study, or ask for a follow-up phone call.