I own a cooperative apartment - How do I figure out the land value and improvement value? Publication 946 is very difficult for me to follow

[AmyC]

The price you paid for your coop was for your share of the assets. You did not buy land in reality so you don't need to include land value. You will have assessments that include land and common areas but that is separate, like the mortgage interest from the coop is separate from your mortgage interest to purchase.

If you just bought the coop and you haven't made any improvements to your area, the purchase price is your basis. If you remodeled the kitchen and bathroom, you have improvements and can add that to the basis.

[rahulv85]

Thank you, so to confirm the coop basis wouldnt have any land value but will only have improvement value correct? 

Additionally, if my coop building also charged me one time and monthly capital assessments, I can include that in the cost basis of the apartment towards improvement value? 

@AmyC 

[DianeW777]

Yes, your land value would be zero since you don't own any land.

Yes, the one time charge for capital assessments are part of your cost basis of the apartment.  

Any ongoing assessments will be an expense each year if applicable (charged for such things as building and lawn maintenance, and sometimes certain utilities depending on the specifics for your co-op).

@rahulv85 

[rahulv85]

Thank you @DianeW777 This is super helpful.

Clarification - Would the following treatment be right from your standpoint? 

Before Conversion of Primary Residence to Rental - All one-time or monthly assessments to be added to the cost basis

After Conversion of Primary Residence to Rental - All one-time or monthly assessments to be expensed against rental income? If so, then what category should I reflect it in Schedule E? Homeowner association fees as part of cleaning and maintenance expense or indirect other expenses? 

[DianeW777]

No. Ongoing monthly assessments are not a capital expense and would not get added to the cost basis before or after the conversion.

Capital assessments are different than regular monthly assessments.

After the conversion this would be an ordinary and necessary expense for your to maintain the property so for that reason, and because a residential rental is a business in tax language, you can deduct these expenses. For your entry, if you want to clearly identify the expense you can use 'Other or Miscellaneous' and identify it. Otherwise, you could use cleaning and maintenance.