Legal fees related to rental property, being quasi-business property, are generally ordinary and necessary expenses that can be immediately deducted.
The instructions for Schedule E state: Do not deduct legal fees paid or incurred to defend or protect title to property, to recover property, or to develop or improve property. Instead, you must capitalize these fees and add them to the property's basis.
However, none of the foregoing is happening here. Rather, the legal expense is mandatory for share owners as a result of the action of the co-op board.
