Selling a Cooperative Apartment: Hey My Basis Just Went Up

I own a coop and am in the process of selling it.  Since I bought it quite a while ago, I expect to pay some taxes on it, so I’ve been doing some research in an area of tax law I’m not very familiar with.

One surprising thing I learned is this from Treas. Reg. Sec. 1.216-1:

(c) Disallowance of deduction for certain payments to the corporation. For taxable years beginning after December 31, 1986, no deduction shall be allowed to a stockholder during any taxable year for any amount paid or accrued to a cooperative housing corporation…which is allocable to amounts that are paid or incurred at any time by the cooperative housing corporation and which is chargeable to the corporation’s capital account. Examples of expenditures chargeable to the corporation’s capital account include….the payment of the principal of the corporation’s building mortgage. The adjusted basis of the stockholder’s stock in such corporation shall be increased by the amount of such disallowance. 

You see, when you sell an cooperative unit, you are really selling shares in the building.  So you have to calculate your basis in the shares.  If i’m reading this correctly, I get to add any principal that my coop has paid on its mortgage for the period I was a resident.  In effect, part of your maintenance costs for living in a coop go to interest deduction and real estate taxes, which are currently deductible.  However, another portion also goes to principal payments on the coop’s mortgage and other capital improvements.  These costs aren’t currently deductible but they do appear to go into your basis.

I feel stupid for not knowing this (assuming I’m reading this right).

200 (5)

But it’s a pretty neat thing for reducing my tax liability for the upcoming sale.  Now, someone tell me how to get information relating to these payments!!!  I guess I better call the management company.

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