Co-op Handbook
Tax Deductions
Shareholders in a co-op corporation are considered by the Internal Revenue Service to be homeowners. As a shareholder, you are entitled to deduct your share of the real estate taxes and mortgage interest paid by the cooperative on tax years when at least 80 percent of the co-op’s gross income originates from shareholders. If you obtained an individual mortgage to purchase your shares in the corporation (also known as a “share loan”), you are also entitled to deduct any interest paid on that loan. Finally, if you sell your shares after owning them and living in the apartment for at least two years, some or all of the profit realized on the sale may be exempt from capital gains taxes (see Selling Your Shares in the Co-op — Capital Gain Exclusion).
(Please note that shareholders are eligible for these tax advantages only on co-op tax years when at least 80 percent of the co-op’s gross income originates from shareholders. That is, no more than 20 percent of the co-op’s gross income can come from commercial sources such as the garage.)
At the beginning of every year you will receive a letter from the co-op’s accountants that indicates how many dollars per share for (1) real estate tax and (2) mortgage interest you will be allowed to claim as itemized deductions on Schedule A of IRS Form 1040. You will also receive a Mortgage Interest Statement (IRS Form 1098) from our management company that indicates the exact dollar amount that you can deduct for mortgage interest (but not for real estate tax).
If you owned the shares for only part of the year, the 1098 form will reflect this. You are allowed to deduct mortgage interest and real estate tax only for that portion of the year you owned the shares.
If you were granted any real estate tax abatements or STAR credits during the year, which were reflected as maintenance credits or received by check, your real estate tax deduction must be reduced by the total amount of the abatements you received.
The interest paid on the individual mortgage (share loan) is reported on a Form 1098 sent to you by your financial institution.
Reader Comments
Posted by Kyira A. Harris, 10 Jan 2003 at 1:22 PM: I’ve filled out my co-op abatement form (STAR application), but need to know where to send it. Please supply me with the address. Thank you!
Posted by Webmaster, 13 Jan 2003 at 11:25 PM: Dear Ms. Harris, Our managing agent tells me that you can send your STAR application to: NYC Dept. of Finance, P.O. Box 32, New York, NY 10008.
Posted by tong, 1 Apr 2003 at 1:08 PM: What should I do if the amount calculated by multiplying # of shares and per share Co-op mortgage is different from the amount on form 1098 sent by co-op? Thank you.
Posted by Webmaster, 1 Apr 2003 at 9:13 PM: 
Dear Tong: Your best bet is to call the managing agent to ask her to explain. The 1098s are prepared by the management company based on the memo prepared annually by the accountants and sent to all shareholders.
Posted by mitchell, 24 Sep 2003 at 5:42 PM: my co-op is currently negotiating the sell of its air rights to a developer considering building next door. the settlement possibility is a significant amount of cash. 1) what are the tax implications on the settlement for the cooperative? 2) what are the tax implications for individual shareholders IF each receive a cash disbursement from the settlement? thank you!
Posted by BASIL JAGARNATH, 5 Apr 2004 at 2:06 PM: We have recently received a cooperative abatement which is held by the Board.Can the Board legally do this? The Board has imposed a number of maintainence increases in a short while. Many are dissatisfied.How can we get the fiance of the coop. audited? Is there a department I can contact for imformation on cooperative apartments? BASIL JAGARNATH
Posted by Webmaster, 9 Apr 2004 at 11:46 AM: Just to clarify, this problem you speak of is in your co-op, not ours. Our co-op (NaBors Apartments) had a slight maintenance increase in 2001 after 10 years of no increases. Furthermore, our tax abatements get passed on to our shareholders as a maintenance DECREASE the first six months of the year. Having cleared that up, a co-op board CAN decide to increase maintenance as a mechanism to offset the tax abatement — in effect “keeping” the abatement for the co-op and not distributing it to the shareholders. However, to be able to do this, a co-op has to have good justification for doing so: Any maintenance increases must always be justified by fiscal need. If your co-op needs the money to fund improvements, then the board can institute a maintenance increase or an assessment to raise the funds. If you believe there is no justification and suspect mismanagement, as a shareholder you have the right to inspect the finances of the corporation — ask them to explain the financial statements and justify financially why they are keeping the tax abatement, etc. You might want to contact the Attorney General’s Office to ask advice or file a complaint against the board. If there is widespread dissatisfaction with the board’s decisions, you can organize your fellow shareholders to vote them out of office by electing new directors.
Posted by Frank Barrera, 15 Jun 2004 at 4:48 PM: Greetings, My wife and I will be moving into 31 Nagle apt 6H very soon. Two questions: Do the tenants always get the full tax exemption? Has the garage ever brought in more than 20% of the annual income? Thanks for your time and see you soon. FB
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