Are Tenant-Stockholders Entitled to a Charitable Contribution Deduction When a Cooperative Housing Corporation Donates a Preservation Easement?

Abstract

Most Tenant-Stockholders of cooperative housing corporations (“CHC”) view themselves as the owners of their apartments, a perception encouraged by the Internal Revenue Code (“Code”), which affords them those tax benefits most commonly associated with home ownership. This article explores the question of whether that perception is accurate with respect to the Code’s tax incentives designed to encourage preservation of historic homes. The Code encourages homeowners to protect their historic homes with preservation easements by allowing a charitable contribution deduction equal to the resulting decline in the value of their home. If a CHC donates a preservation easement, the law is clear that the CHC is entitled to claim a charitable contribution deduction but less clear regarding whether the Tenant-Stockholders may do so as well. Because the statutory constraints placed on the amount of income a CHC may recognize, any charitable contribution deduction claimed by the CHC will, most likely, be worthless. The only way to encourage the preservation of historic cooperatives is to allow the Tenant-Stockholders to claim a deduction.

This article posits that Tenant-Stockholders expect, if the CHC encumbers the cooperative premises with a preservation easement, to deduct their proportionate share of the CHC’s charitable contribution deduction, just as they deduct their proportionate share of mortgage interest and real estate taxes paid by the CHC. Because Section 216, which authorizes Tenant-Stockholders to deduct their proportionate share of carrying charges paid by the CHC, does not include the deduction for charitable contributions in its list of expenses qualifying for deduction by both a CHC and its Tenant-Stockholders, an argument that Tenant-Stockholders are allowed to deduct their proportionate share of the CHC’s charitable contribution deduction is likely to fail. This article argues that current law supports characterizing CHC stock as real estate for purposes of the qualified conservation contribution and, therefore, Tenant-Stockholders should be entitled to grant a qualified conservation contribution with respect to their CHC stock and claim the resulting charitable contribution deduction.

Keywords: common-interest communities, tenant-stockholders, cooperative housing corporations, CHC, preservation easements, donations, tax benefits of home ownership, tax deductions