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A qualified home includes stock in a cooperative housing corporation owned by a tenant-stockholder. This applies only if the tenant-stockholder is entitled to live in the house or apartment because of owning stock in the cooperative.Cooperative housing corporation
This is a corporation that meets all of the following conditions:
- The corporation has only one class of stock outstanding.
- Each of the stockholders, only because of owning the stock, can live in a house, apartment, or house trailer owned or leased by the corporation.
- No stockholder can receive any distribution out of capital, except on a partial or complete liquidation of the corporation.
- The tenant-stockholders must pay at least 80% of the corporation's gross income for the tax year. For this purpose, gross income means all income received during the entire tax year, including any received before the corporation changed to cooperative ownership.
Stock used to secure debt:
In some cases, you cannot use your cooperative housing stock to secure a debt because of either:
- Restrictions under local or state law, or
- Restrictions in the cooperative agreement (other than restrictions in which the main purpose is to permit the tenant-stockholder to treat unsecured debt as secured debt).
However, you can treat a debt as secured by the stock to the extent that the proceeds are used to buy the stock under the allocation of interest rules. See chapter 4 of IRS Publication 535 for details on these rules.
Figuring deductible home mortgage interest:
Generally, if you are a tenant-stockholder, you can deduct payments you make for your share of the interest paid or incurred by the cooperative. The interest must be on a debt to buy, build, change, improve, or maintain the cooperative's housing, or on a debt to buy the land. Figure your share of this interest by multiplying the total by the following fraction.Your shares of stock in the cooperative / The total shares of stock in the cooperative
Limits on deduction:
To figure how the limits discussed in Part II apply to you, treat your share of the cooperative's debt as debt incurred by you. The cooperative should determine your share of its grandfathered debt, its home acquisition debt, and its home equity debt. (Your share of each of these types of debt is equal to the average balance of each debt multiplied by the fraction just given.) After your share of the average balance of each type of debt is determined, you include it with the average balance of that type of debt secured by your stock.Form 1098:
The cooperative should give you a Form 1098 showing your share of the interest. Use the rules in this publication to determine your deductible mortgage interest.From IRS Publication 936
All Chapters concerning this topic: home mortgage interest; secured debt; qualified home; Special Situations; Points; Mortgage Insurance Premiums; Form 1098, Mortgage Interest Statement; How To Report; Special Rule for Tenant-Stockholders; Home Acquisition Debt; Home Equity Debt; Grandfathered Debt
