Tax Deductions for Condos & Co-ops

Condominium and cooperative housing arrangements are considered common interest developments, meaning that many people occupy and share ownership in a housing unit. With a condo, you own your apartment unit fee simple, meaning you have exclusive interest in that unit, and you have the right to use common areas. With a co-op, you own shares in a corporation that owns a housing unit. Each of these forms of home ownership qualify you for income tax deductions available to other taxpayers who own homes.

Mortgage Interest -- Condo Purchase

Interest that you pay on the purchase of a condominium is deductible on your federal income tax, with some limitations. If you have less than $1 million in mortgage debt on all of your mortgages, the interest is tax deductible. This also applies to home equity debt up to $100,000. The allowable amounts are cut in half if you are married and filing a separate income tax return. You deduct mortgage interest as an itemized deduction on Schedule A of your Form 1040.

Mortgage Interest -- Co-op Share Purchase

Interest that you pay on a loan to purchase shares in a cooperative apartment building may be deductible subject to the same limits for all other mortgages if the shares and the corporation meet certain criteria. The stock you purchase must allow you the right to live in the apartment. The corporation can only issue one class of stock -- and only to people who live in the building. Eighty percent of the income of the corporation must come from tenants of the building, and 80 percent of the space in the building must be available to shareholder tenants. If these conditions are met, interest on a loan to purchase shares in a co-op is deductible as a home mortgage.

Mortgage on Co-op Building Purchase

A corporation that owns a co-op apartment building can borrow money to purchase that building, as well as finance the upkeep, maintenance and improvement of that building. The payments on these mortgages are paid by the maintenance fees assessed to the co-op owner. Each tenant's portion of the interest on this mortgage is deductible as an itemized deduction. The corporation will issue a Form 1098 to each tenant reporting his portion of the interest.

Property Taxes -- Condo

Due to the fee simple nature of condominium ownership, the local municipality assesses taxes on the owner of each condo apartment separately. As the owner, you receive a tax bill in your own name, and these real estate taxes are deductible as an itemized deduction on your income tax return. No separate tax is assessed on the common areas and the building, so condo maintenance fees do not include any taxes and are not deductible.

Property Taxes -- Co-op

A cooperative apartment building is owned by the corporation and is one complete unit, receiving one property tax bill. The tenants pay the tax bill as part of their maintenance fees but you receive no separate tax bill from your local taxing authority. The co-op management will notify each tenant about her portion of the tax bill, and you may deduct that tax bill on your income taxes as an itemized deduction.

Home Office

If you are self-employed and maintain a home office in your condo or co-op apartment, you may be able to take advantage of the home office deduction. To qualify, you must have a room or several rooms that you use exclusively for your business. You can deduct a portion of your home expenses, including maintenance, utilities, and insurance, that is proportionate to the amount of space that your home office occupies compared to the total space of your unit. If your home office makes up 25 percent of your unit, you can deduct 25 percent of all of your home-related expenses.