Example. The X corporation is a cooperative housing corporation within the meaning of section 216. In 1988 X uses $275,000 that it received from its shareholders in such year to purchase and place in service a new boiler. The $275,000 will be chargeable to the corporation's capital account. A owns 10% of the shares of X and uses in a trade or business the dwelling unit appurtenant to A's shares and was responsible for paying 10% of the cost of the boiler. A is thus responsible for $27,500 of the cost of the boiler, which amount A will not be able to deduct currently. A will, however, add the $27,500 to A's basis for A's shares in X.
Shares of X Corporation owned by A | 100 | |
Shares of X Corporation owned by four other tenant-stockholders | 400 | |
Shares of X Corporation deemed owned by governmental unit | 500 | |
Total shares of X Corporation outstanding | 1,000 | |
A's proportionate share of the stock of X Corporation (100/1,000) | 1/10 | |
Expenses incurred by X Corporation: | ||
Real estate taxes | $4,000 | |
Interest | 5,000 | |
Other | 4,800 | |
Total | $13,800 | |
Amount paid by A | 1,380 | |
A's proportionate share of real estate taxes and interest based on his stock ownership (1/10 of $9,000) | $900 | |
A's proportionate share of total corporate expenses based on his stock ownership (1/10 of $13,800) | 1,380 | |
Amount of A's payment representing real estate taxes and interest (900/1,380 of $1,380) | $900 | |
A's allowable deduction | $900 |
Since the stock which A acquired by gift was fully paid up by his donor in an amount equal to the portion of the fair market value, as of the date of the original issuance of the stock, of the corporation's equity in the land and building which is attributable to apartment No. 1, the requirement of section 216 in this regard is satisfied. The fair market value at the time of the gift of the corporation's equity attributable to the apartment is immaterial.
Expenses incurred by X Corporation | $13,800.00 | |
Less: Rent from business space | 2,400.00 | |
Expenses to be prorated among tenant-stockholders | $11,400.00 | |
Amount paid by A | 1,140.00 | |
A's proportionate share of real estate taxes and interest based on his stock ownership (1/10 of $9,000) | 900.00 | |
A's proportionate share of total corporate expenses based on his stock ownership (1/10 of $13,800) | 1,380.00 | |
Amount of A's payment representing real estate taxes and interest (900/1380 of $1,140) | 743.48 | |
A's allowable deduction | 743.48 |
Since the portion of A's payment allocable to real estate taxes and interest is only $743.48, that amount instead of $900 is allowable as a deduction in computing A's taxable income for 1972.
Amount paid by A | $1,000.00 | |
A's proportionate share of real estate taxes and interest based on his stock ownership (1/10 of $9,000) | 900.00 | |
A's proportionate share of total corporate expenses based on his stock ownership (1/10 of $13,800) | 1,380.00 | |
Amount of A's payment representing real estate taxes and interest (900/1380 of $1,000) | 652.17 | |
A's allowable deduction | 652.17 |
Since the portion of A's payment allocable to real estate taxes and interest is only $652.17, that amount instead of $900 is allowable as a deduction in computing A's taxable income for 1972.
Expenses to be prorated among tenant-stockholders | $19,800 | |
Amount paid by A | 2,000 | |
A's proportionate share of real estate taxes and interest based on his stock ownership (1/10 of $9,000) | 900 | |
A's proportionate share of total corporate expenses based on his stock ownership (1/10 of $19,800) | 1,980 | |
Amount of A's payment representing real estate taxes and interest (900/1,980 of $1,980) | 900 | |
A's allowable deduction | 900 |
The $1,000 of real estate taxes assessed against the recreational facilities constitutes additional rent and hence is not deductible by A as taxes under section 216. A's allowable deduction is limited to his proportionate share of real estate taxes and interest based on stock ownership and cannot be increased by the payment of an amount in excess of his proportionate share.
26 C.F.R. §1.216-1