Co-op Mortgage Tax Deduction Limits and Calculation

[Joseph Skoler]

Could someone please explain the mortgage interest limitations in the case of a NYC Co-Op owner?

For example:

Co-op has 100 units and an outstanding underlying mortgage of $20,000,000 ($200,000 per unit allocated). Owner's share of the interest on the underly mortgage paid in 2023 is $5,000

Owner of (shares and lease to) unit A has mortgage against that unit with a current principal of $800,000. Owner has paid $40,000 in interest in 2023.

The owner is limited to $750,000 in deductible interest.

For the purposes of calculating the limited interest deduction, should the total mortgage debt owed be $800,000 (the mortgage on the individual unit) or $1,000,000 (the sum of the mortgages on the individual unit and the owner's share of the underlying mortgage)?

That is, can the owner deduct $37,500 (750000/800000 * 40000) or $33,750 (750000/1000000 * 45000)?

Of course, I could very well be missing important factors or confused about the whole thing.

Thank you!

[Account Closed]

For the purposes of calculating the limited interest deduction, the total mortgage debt owed would include both the individual mortgage on Unit A and the owner's share of the underlying mortgage.

So, the total mortgage debt owed would be $800,000 (individual mortgage) + $200,000 (owner's share of underlying mortgage) = $1,000,000.

Therefore, the owner would be limited to deducting mortgage interest based on this total mortgage debt of $1,000,000, not just the individual mortgage.

Thus, the deduction for mortgage interest would be calculated as:

($750,000 / $1,000,000) * $40,000 = $30,000

Therefore, in this scenario, the owner would be able to deduct $30,000 of mortgage interest for federal income tax purposes.