Section 216 states that tax deductions for shareholders are allowed as long as the co-op corporation meets 1 or more of the following requirements for the taxable year in which the taxes and interest are paid or incurred:
(i) 80 percent or more of the corporation’s gross income for such taxable year is derived from tenant-stockholders.
(ii) At all times during such taxable year, 80 percent or more of the total square footage of the corporation’s property is used or available for use by the tenant-stockholders for residential purposes or purposes ancillary to such residential use.
(iii) 90 percent or more of the expenditures of the corporation paid or incurred during such taxable year are paid or incurred for the acquisition, construction, management, maintenance, or care of the corporation’s property for the benefit of the tenant-stockholders.
As a result, many co-op boards are regretting 50 year leases they’ve signed with commercial units with provisions that automatically reduce rent if total commercial revenue exceeds 20% of the co-op building’s total revenue.
Please note: this article is not intended to serve as legal or tax advice. You should consult your lawyer and tax attorney for all aspects of your real estate transaction.