26 USC 216 - Deduction of taxes, interest, and business depreciation by cooperative housing corporation tenant-stockholder

(a) Allowance of deduction 
In the case of a tenant-stockholder (as defined in subsection (b)(2)), there shall be allowed as a deduction amounts (not otherwise deductible) paid or accrued to a cooperative housing corporation within the taxable year, but only to the extent that such amounts represent the tenant-stockholders proportionate share of
(1) 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
(2) the interest allowable as a deduction to the corporation under section 163 which is paid or incurred by the corporation on its indebtedness contracted
(A) in the acquisition, construction, alteration, rehabilitation, or maintenance of the houses or apartment building, or
(B) in the acquisition of the land on which the houses (or apartment building) are situated.
(b) Definitions 
For purposes of this section
(1) Cooperative housing corporation 
The term cooperative housing corporation means a corporation
(A) having one and only one class of stock outstanding,
(B) 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,
(C) 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
(D) meeting 1 or more of the following requirements for the taxable year in which the taxes and interest described in subsection (a) are paid or incurred:
(i) 80 percent or more of the corporations 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 corporations 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 corporations property for the benefit of the tenant-stockholders.
(2) Tenant-stockholder 
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 corporations 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.
(3) Tenant-stockholder’s proportionate share 

(A) In general 
Except as provided in subparagraph (B), the term tenant-stockholders 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).
(B) Special rule where allocation of taxes or interest reflect cost to corporation of stockholder’s unit 

(i) In general If, for any taxable year
(I) each dwelling unit owned or leased by a cooperative housing corporation is separately allocated a share of such corporations real estate taxes described in subsection (a)(1) or a share of such corporations interest described in subsection (a)(2), and
(II) such allocations reasonably reflect the cost to such corporation of such taxes, or of such interest, attributable to the tenant-stockholders dwelling unit (and such units share of the common areas),

then the term tenant-stockholders proportionate share means the shares determined in accordance with the allocations described in subclause (II).

(ii) Election by corporation required 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.
(4) Stock owned by governmental units 
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.
(5) Prior approval of occupancy 
For purposes of this section, in the following cases there shall not be taken into account the fact that (by agreement with the cooperative housing corporation) the person or his nominee may not occupy the house or apartment without the prior approval of such corporation:
(A) In any case where a person acquires stock of a cooperative housing corporation by operation of law.
(B) In any case where a person other than an individual acquires stock of a cooperative housing corporation.
(C) 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.
(6) Original seller defined 
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).
(c) Treatment as property subject to depreciation 

(1) In general 
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.
(2) Deduction limited to adjusted basis in stock 

(A) In general 
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.
(B) Carryforward of disallowed amount 
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.
(d) Disallowance of deduction for certain payments to the corporation 
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 stockholders 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 corporations capital account. The stockholders adjusted basis in the stock in the corporation shall be increased by the amount of such disallowance.
(e) Distributions by cooperative housing corporations 
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 stockholders stock in such corporation and such dwelling unit is used as his principal residence (within the meaning of section 121).