IRS Letter to Congressional Office Indicates $10,000 Cap Applies to Deduction of Real Estate Taxes on Real Estate Cooperative Unit under 216

 

The IRS has issued a letter to a Congressional office clarifying that the $10,000 cap on state and local tax deductions also applies to the deduction of real estate taxes on a real estate cooperative unit under Section 216.

Background

The Tax Cuts and Jobs Act (TCJA) limited the deduction for state and local taxes (SALT) to $10,000 per year for tax years 2018 through 2025. The TCJA did not specifically address the treatment of real estate taxes on cooperative units, leading to some uncertainty among taxpayers.

IRS Letter

The IRS recently issued a letter to a Congressional office stating that the $10,000 cap on SALT deductions also applies to the deduction of real estate taxes on a real estate cooperative unit under Section 216. The letter clarifies that real estate taxes paid by a cooperative corporation on behalf of its shareholders are considered paid by the shareholders and subject to the $10,000 cap.

Impact on Taxpayers

Taxpayers who own a real estate cooperative unit should be aware of the $10,000 cap on the deduction of real estate taxes. This may have a significant impact on their tax liability, particularly if they live in a high-tax state or locality.

Conclusion

The IRS letter provides much-needed clarity on the treatment of real estate taxes on cooperative units under the TCJA. Taxpayers who own a real estate cooperative unit should be aware of the $10,000 cap on the deduction of real estate taxes and consult with a qualified tax professional to ensure compliance with tax laws.