26 U.S.C. § 216: Deduction of taxes, interest, and business depreciation by cooperative housing corporation tenant-stockholder

the real estate taxes allowable as a deduction to the corporation under section 164 which are paid or incurred by the corporation on the houses or apartment building and on the land on which such houses (or building) are situated, or in the acquisition, construction, alteration, rehabilitation, or maintenance of the houses or apartment building, or in the acquisition of the land on which the houses (or apartment building) are situated. having one and only one class of stock outstanding, each of the stockholders of which is entitled, solely by reason of his ownership of stock in the corporation, to occupy for dwelling purposes a house, or an apartment in a building, owned or leased by such corporation, no stockholder of which is entitled (either conditionally or unconditionally) to receive any distribution not out of earnings and profits of the corporation except on a complete or partial liquidation of the corporation, and 80 percent or more of the corporation’s gross income for such taxable year is derived from tenant-stockholders. 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. 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. The term “tenant-stockholder” means a person who is a stockholder in a cooperative housing corporation, and whose stock is fully paid-up in an amount not less than an amount shown to the satisfaction of the Secretary as bearing a reasonable relationship to the portion of the value of the corporation’s equity in the houses or apartment building and the land on which situated which is attributable to the house or apartment which such person is entitled to occupy. Except as provided in subparagraph (B), the term “tenant-stockholder’s proportionate share” means that proportion which the stock of the cooperative housing corporation owned by the tenant-stockholder is of the total outstanding stock of the corporation (including any stock held by the corporation). each dwelling unit owned or leased by a cooperative housing corporation is separately allocated a share of such corporation’s real estate taxes described in subsection (a)(1) or a share of such corporation’s interest described in subsection (a)(2), and such allocations reasonably reflect the cost to such corporation of such taxes, or of such interest, attributable to the tenant-stockholder’s dwelling unit (and such unit’s share of the common areas), Clause (i) shall apply with respect to any cooperative housing corporation only if such corporation elects its application. Such an election, once made, may be revoked only with the consent of the Secretary. For purposes of this subsection, in determining whether a corporation is a cooperative housing corporation, stock owned and apartments leased by the United States or any of its possessions, a State or any political subdivision thereof, or any agency or instrumentality of the foregoing empowered to acquire shares in a cooperative housing corporation for the purpose of providing housing facilities, shall not be taken into account. In any case where a person acquires stock of a cooperative housing corporation by operation of law. In any case where a person other than an individual acquires stock of a cooperative housing corporation. In any case where the original seller acquires any stock of the cooperative housing corporation from the corporation not later than 1 year after the date on which the apartments or houses (or leaseholds therein) are transferred by the original seller to the corporation. For purposes of paragraph (5), the term “original seller” means the person from whom the corporation has acquired the apartments or houses (or leaseholds therein). So much of the stock of a tenant-stockholder in a cooperative housing corporation as is allocable, under regulations prescribed by the Secretary, to a proprietary lease or right of tenancy in property subject to the allowance for depreciation under section 167(a) shall, to the extent such proprietary lease or right of tenancy is used by such tenant-stockholder in a trade or business or for the production of income, be treated as property subject to the allowance for depreciation under section 167(a). The preceding sentence shall not be construed to limit or deny a deduction for depreciation under section 167(a) by a cooperative housing corporation with respect to property owned by such a corporation and leased to tenant-stockholders. The amount of any deduction for depreciation allowable under section 167(a) to a tenant-stockholder with respect to any stock for any taxable year by reason of paragraph (1) shall not exceed the adjusted basis of such stock as of the close of the taxable year of the tenant-stockholder in which such deduction was incurred. The amount of any deduction which is not allowed by reason of subparagraph (A) shall, subject to the provisions of subparagraph (A), be treated as a deduction allowable under section 167(a) in the succeeding taxable year. No deduction shall be allowed to a stockholder in a cooperative housing corporation for any amount paid or accrued to such corporation during any taxable year (in excess of the stockholder’s proportionate share of the items described in subsections (a)(1) and (a)(2)) to the extent that, under regulations prescribed by the Secretary, such amount is properly allocable to amounts paid or incurred at any time by the corporation which are chargeable to the corporation’s capital account. The stockholder’s adjusted basis in the stock in the corporation shall be increased by the amount of such disallowance. Except as provided in regulations no gain or loss shall be recognized on the distribution by a cooperative housing corporation of a dwelling unit to a stockholder in such corporation if such distribution is in exchange for the stockholder’s stock in such corporation and such dwelling unit is used as his principal residence (within the meaning of section 121). The amendments made by this section [amending this section] shall apply to taxable years beginning after December 31, 1986 . Except as provided in subparagraph (B), subsection (e) [set out below] shall apply to taxable years beginning before January 1, 1986 . Subsection (e)(7) [set out below] shall apply to amounts paid or incurred, and property acquired, in taxable years beginning, after December 31, 1985 .” closing costs, or the creation of reserves for the qualified cooperative housing corporation, section 216 of the Internal Revenue Code of 1954 [now 1986] (relating to deduction of taxes, interest, and business depreciation by cooperative housing corporation tenant-stockholder), and section 277 of such Code (relating to deductions incurred by certain membership organizations in transactions with members). Nothing in the provisions of this paragraph shall be construed to infer that a change in law is intended with respect to the treatment of deductions under section 277 of the Internal Revenue Code of 1954 [now 1986] with respect to cooperative housing corporations, and any determination of such issue shall be made as if such provisions had not been enacted. claimed (on a return of tax imposed by chapter 1 of the Internal Revenue Code of 1954 [now 1986]) as a deduction by a qualified cooperative housing corporation for interest for any taxable year beginning before January 1, 1986 , on a second mortgage loan made by a city housing development agency or corporation in connection with a qualified refinancing, and reported (before April 16, 1986 ) by the qualified cooperative housing corporation to its tenant-stockholders as interest described in section 216(a)(2) of such Code, such corporation is, after the application of paragraphs (1) and (2), a cooperative housing corporation (as defined in section 216(b) of the Internal Revenue Code of 1954 [now 1986]), such corporation is subject to a qualified limited-profit housing companies law, and filed for incorporation on July 22, 1965 , or filed for incorporation on March 5, 1964 . For purposes of subparagraph (A), the term ‘qualified limited-profit housing companies law’ means any limited-profit housing companies law which limits the resale price for a tenant-stockholder’s stock in a cooperative housing corporation to the sum of his basis for such stock plus his proportionate share of part or all of the amortization of any mortgage on the building owned by such corporation. with respect to a qualified cooperative housing corporation described in paragraph (4)(A)(iii)(I) on September 20, 1978 , or with respect to a qualified cooperative housing corporation described in paragraph (4)(A)(iii)(II) on November 21, 1978 , and in which a qualified cooperative housing corporation refinanced a first mortgage loan made to such corporation by a city housing development agency with a first mortgage loan made by a city housing development corporation and insured by an agency of the Federal Government and a second mortgage loan made by such city housing development agency, in the process of which a reserve was created (as required by such Federal agency) and closing costs were paid or reimbursed by such city housing development agency or corporation. For purposes of this subsection, the term ‘qualified refinancing-related reserve’ means any reserve of a qualified cooperative housing corporation with respect to the creation of which no amount was included in the gross income of such corporation by reason of paragraph (a). no deduction shall be allowed under chapter 1 of such Code, and the basis of any property acquired with such payment (determined without regard to this subparagraph) shall be reduced by the amount of such payment. first from amounts excluded from gross income by reason of paragraph (1) to the extent thereof, and then from other amounts in the reserve.”