If you’ve checked out any co-op listings in NYC, you’ve most-likely seen a note in the listing information something to the effect of “% tax deductible.” Ever wondered what that means or how it’s figured out? It’s actually fairly simple.
When you purchase property, your real estate taxes and any interest you pay on your mortgage are tax deductible. In a condo, you’ll normally see two separate monthly charges noted in the listing information: common charges and real estate taxes. Real estate taxes are tax deductible; common charges are not. Easy.
For co-ops, however, things get a just a little bit more complicated. Since you’re actually purchasing shares in the corporation that owns the building, rather than a specific apartment, in a co-op the portion of your monthly maintenance charge that goes towards real estate taxes for the building and interest on the building’s underlying mortgage is tax deductible. This percentage is different for each unit and is the “% tax deductible” number that normally shows up in the listing information underneath the monthly maintenance.
So, how exactly is that tax deductibility figured out? Here’s a step by step guide to running the numbers for yourself.
Step 1: Gather the following information:
- Monthly maintenance payment for the apartment
- Number of shares allocated to the apartment
- Building deduction for underlying mortgage interest per share
- Building deduction for real estate tax per share
Step 2: Multiply the monthly maintenance by 12 to get the annual maintenance.
- (monthly maintenance) x 12 = annual maintenance
Step 3: Multiply the mortgage interest per share by the number of shares to get the total mortgage interest.
- (mortgage interest per share) x (number of shares) = total mortgage interest
Step 4: Multiply the real estate tax per share by the number of shares to get the total real estate taxes.
- (real estate tax per share) x (number of shares) = total real estate taxes
Step 5: Add the total mortgage interest to the total real estate taxes to get the total deduction.
- (total mortgage interest) + (total real estate taxes) = total deduction
Step 6: Divide the total deduction by the annual maintenance to get the percentage of the maintenance that’s tax deductible.
- (total deduction) / (annual maintenance) = Tax Deductibility
Now that you know this simple formula, you can quickly and easily figure out your expected tax deduction on a co-op. However, do keep in mind that tax laws can change, so always check with your accountant or attorney to make sure you have the most up-to-date info.