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. 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 – Capital Gain Exclusion).
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.