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Real estate taxes and co-op owners.

A working group of the AICPA Tax Division's Individual Taxation Committee has considered the tax treatment of real estate taxes paid by an owner of a cooperative. Specifically, it appears that a co-op shareholder's portion of the real estate taxes paid by the co-op housing corporation is not required to be added back by the shareholder as an alternative minimum tax (AMT) adjustment under Sec. 56. These taxes are deductible under Sec. 216, while Sec. 56(b)(1)(A) disallows real estate taxes deductible under Sec. 164(a) for AMT purposes. Sec. 164(a)(1) does not govern the deductibility of a co-op shareholder's portion of the co-op's real estate taxes, since Sec. 216 specifically allows a co-op shareholder to deduct his portion of the real estate taxes paid by the co-opt Furthermore, these Sec. 216 real estate taxes should not be reclassified as a miscellaneous itemized deduction subject to the 2% adjusted gross income (AGI) limit that is an addback for AMT purposes, as Sec. 67 provides that miscellaneous itemized deductions subject to the 2% AGI limit do not include deductions allowable under Sec. 216.

In light of this analysis, it appears that a shareholder's share of a co-op's real estate taxes is not required to be added back for AMT purposes. The next issue is how these taxes should be reported on an individual's income tax return. Reporting them as a miscellaneous itemized deduction not subject to the 2% limit may trigger a notice from the IRS; the instructions for this item on Schedule A specify which deductions are allowable on this line and Sec. 216 real estate taxes are not included. However, the law, not the form instructions, controls. In the alternative, these taxes could be included as "Other taxes" on Schedule A and added back on Form 6251, Alternative Minimum Tax--Individuals, as an AMT adjustment and then reversed on line 14(n) as a related adjustment.

From Martin Nissenbaum, CPA, Ernst & Young LLP, New York, N.Y., Individual Taxation Committee member (not affiliated with AFAI)
COPYRIGHT 1997 American Institute of CPA's
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Copyright 1997, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Author:Nissenbaum, Martin
Publication:The Tax Adviser
Article Type:Brief Article
Date:Dec 1, 1997
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