Emily Myers for Brick Underground
Are the maintenance fees for my New York City co-op tax deductible? How does this work?
Yes, if you buy in a co-op building, a portion (but not all) of your maintenance will be tax deductible. That means on each year's tax return, you can get a deduction for the portion of your maintenance that is applied to real estate taxes and mortgage interest.
Each building is different but in most cases it is in the 60 percent range, says Michael Esposito, a certified public accountant with Wilkin Guttenplan. He prepares the financial statements for hundreds of the city's co-ops.
"Real estate taxes probably run in the 40-55 percent range of expenses and the mortgage debt service depends on the building, but is probably in the 5 to 10 percent range," he says.
To calculate your portion that's tax deductible, you take the amount of shares you have in the co-op and multiply that by the per-share deduction for real estate taxes and mortgage interest—information you will get on the annual Form 1098 sent to shareholders or by a letter from your building's accountant. The portion of the maintenance that is collected for repairs and payroll will not be deductible.
The paperwork you get will indicate that you can deduct, for example, $2 per share of mortgage interest and $20 per share for real estate taxes.
There are also adjustments that can be made if you have commercial units or a commercial rent coming in, Esposito says.
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Other tax benefits from the mortgage
In addition to deductibility for the maintenance there may be other tax benefits you can get. If the co-op has an amortizing mortgage where you are paying off the principal and the interest, shareholders get a tax benefit for their share of the mortgage amortization that is built into their maintenance.
Esposito says the mortgage paid down is added to the cost basis of the apartment, reducing the gain you'll be taxed on if and when you sell.
"You only derive a benefit when you sell and when your gain is more than $250,000 if you’re single or $500,000 if you’re married," Esposito says. So the amounts may be subject to your personal limitations on your personal returns.