Residential Rental Property Cooperative IRS Tax Tips
If you live in a cooperative, you do not own your apartment. Instead, a corporation owns the apartments and you are a tenant-stockholder in the cooperative housing corporation. If you rent your apartment to others, you usually can deduct, as a rental expense, all the maintenance fees you pay to the cooperative housing corporation.
In addition to the maintenance fees paid to the cooperative housing corporation, you can deduct your direct payments for repairs, upkeep, and other rental expenses, including interest paid on a loan used to buy your stock in the corporation.
Depreciation
You will be depreciating your stock in the corporation rather than the apartment itself. Figure your depreciation deduction as follows.
- Figure the depreciation for all the depreciable real property owned by the corporation. (Depreciation methods are discussed in chapter 2 of this publication and Publication 946.) If you bought your cooperative stock after its first offering, figure the depreciable basis of this property as follows.
- Multiply your cost per share by the total number of outstanding shares.
- Add to the amount figured in (a) any mortgage debt on the property on the date you bought the stock.
- Subtract from the amount figured in (b) any mortgage debt that is not for the depreciable real property, such as the part for the land.
- Subtract from the amount figured in (1) any depreciation for space owned by the corporation that can be rented but cannot be lived in by tenant-stockholders.
- Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation.
- Multiply the result of (2) by the percentage you figured in (3). This is your depreciation on the stock.
Your depreciation deduction for the year cannot be more than the part of your adjusted basis (defined in chapter 2) in the stock of the corporation that is allocable to your rental property.
Payments added to capital account. Payments earmarked for a capital asset or improvement, or otherwise charged to the corporation’s capital account are added to the basis of your stock in the corporation. For example, you cannot deduct a payment used to pave a community parking lot, install a new roof, or pay the principal of the corporation’s mortgage.
Treat as a capital cost the amount you were assessed for capital items. This cannot be more than the amount by which your payments to the corporation exceeded your share of the corporation’s mortgage interest and real estate taxes.
Your share of interest and taxes is the amount the corporation elected to allocate to you, if it reasonably reflects those expenses for your apartment. Otherwise, figure your share in the following manner.
- Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation.
- Multiply the corporation’s deductible interest by the number you figured in (1). This is your share of the interest.
- Multiply the corporation’s deductible taxes by the number you figured in (1). This is your share of the taxes.
Cooperatives changed to rentals. If you change your cooperative apartment to rental use, figure your allowable depreciation as explained earlier. The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts.
- The fair market value of the property on the date you change your apartment to rental use. This is considered to be the same as the corporation’s adjusted basis minus straight line depreciation, unless this value is unrealistic.
- The corporation’s adjusted basis in the property on that date. Do not subtract depreciation when figuring the corporation’s adjusted basis.
If you bought the stock after its first offering, the corporation’s adjusted basis in the property is the amount figured in (1) under Depreciation (under Cooperative, near the beginning of this chapter). The fair market value of the property is considered to be the same as the corporation’s adjusted basis figured in this way minus straight line depreciation, unless the value is unrealistic.
Source: IRS Publication 527
This blog post for Real Estate Professionals, Investors, Landlord, Property Manager, and Property Management Companies is brought to you by SimplifyEm Pay Rent Online and Property Management Software
This is a blog post for Real Estate Professionals, Investors, Landlord, Property Manager, and Property Management Companies. 2010 Cooperatives Rental Property Tax Tips for Landlords, Real Estate Investors is brought to you by SimplifyEm Pay Rent Online and Property Management Software
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