Are HOA fees tax deductible? Many homeowners ask this question. The answer depends on how the property is used. While HOA fees cover a wide range of community services, not all of them qualify as deductible expenses. That said, there are specific situations that may count them as tax-deductible.
What are HOA Fees?
Homeowners living in an HOA must pay regular fees to their association. These fees cover common area maintenance, landscaping, shared utilities, amenities, and insurance. In some cases, HOA fees also help cover special projects, such as new roofs or resurfaced roads.
Every association sets its own monthly, quarterly, or yearly dues. Condo owners may pay more than single-family homeowners due to the additional shared elements. Some HOAs also charge special assessments in addition to standard fees.
Association dues are typically mandatory. Still, just because they are required doesn’t mean they are automatically tax-deductible.
For homeowners who ask, “Can you claim HOA fees on taxes?” The answer depends on how they use the property.
Are HOA Fees Tax Deductible?
Taxes can be a thorn in the side of many homeowners, so it makes sense to want to deduct as much as possible. This leads to HOA members wondering, “Are homeowners association dues tax deductible?”
Homeowners who live in their homes full-time typically can’t deduct HOA fees on their taxes. The Internal Revenue Service (IRS) treats HOA dues as personal living expenses. That means they fall into the same category as rent, groceries, or home repairs. None of these expenses are tax-deductible.
Even if the HOA fee covers services like landscaping or security, it still generally doesn’t qualify as a deductible expense. The IRS only allows deductions for costs directly tied to earning income or maintaining an investment.
Simply put, for those who use the home as their main residence and don’t conduct business from it, HOA fees are not deductible.
When are HOA Fees Tax-Deductible?
Although most homeowners won’t get a tax break, there are some situations where HOA fees may become deductible. When are homeowners association fees tax-deductible? Let us count the ways.
1. Rental Properties
If a homeowner rents out their property to a tenant, then HOA fees will usually qualify as a business expense. Homeowners can often deduct regular maintenance costs as part of the expense of owning a rental property. This includes both long-term and short-term rentals, such as vacation homes on Airbnb and Vrbo.
Deductible fees may include landscaping, trash removal, exterior building upkeep, and access to amenities. As long as the property generates rental income and the HOA dues support that income, they are generally considered deductible.
To deduct HOA fees in rental properties, homeowners should report them on Schedule E, line 19 under “Other.” They must attach this schedule to their tax return.
2. Home Offices
If a homeowner uses a part of their home exclusively as a home office, the IRS may allow them to deduct a portion of the HOA fees. To qualify, the office must function as a separate space that the owner uses regularly for business purposes.
In this case, the percentage deduction of the total HOA fees will be based on the square footage of the home office. For example, if the home office makes up 10% of the home’s area, then the owner may deduct 10% of the HOA dues.
How to Document HOA Fees for Tax Purposes
Proper documentation is crucial for accurate tax reporting. If a homeowner qualifies for a tax deduction on their HOA fees, they must take the following steps:
- Save copies of all invoices, HOA statements, notices, and payment confirmations.
- Record the use of the property, distinguishing between personal and rental or business use.
- For home offices, calculate the eligible percentage and document it.
- Track how much of the HOA fees are allocated to deductible services, especially when it concerns special assessments.
Are Condo Association Fees Tax Deductible?
Certain circumstances can make HOA fees tax-deductible, but what about condo fees? First, it’s important to define condo fees. These are fees that function similarly to HOA fees. They cover various expenses related to shared elements such as building maintenance, landscaping, amenity upkeep, and insurance.
In general, the same tax rules that apply to HOA fees also apply to condo fees. For personal-use condominiums, these fees are not tax-deductible. Living in the unit as a primary residence or using it as a second home does not make condo fees eligible for tax write-offs. They are considered personal expenses under IRS rules.
That said, if the owner rents out the unit, condo fees become tax-deductible. Owners can treat them as part of their operating expenses, just like mortgage interest or property management costs. Just like HOA fees, this applies to both long-term and short-term rentals.
Condo owners with a home office may also qualify to deduct a portion of their condo fees. They must meet the exact home office requirements of single-family properties. This means that they must use the space regularly and exclusively for business purposes.
Just like with HOA fees, documentation is important. Owners should keep statements, receipts, and records of their use of the condo unit. This way, they can provide proof should the IRS ask for it.
The Importance of Talking to a Tax Professional
Homeowners often find it difficult to interpret tax laws or keep up with changing regulations. Additionally, not many owners understand IRS interpretations of what counts as a deductible expense. For this reason, homeowners should always consult with a tax professional such as a Certified Public Accountant (CPA).
A tax professional can confirm whether or not a homeowner’s HOA fees are tax-deductible. They can help identify partial deductions, particularly in mixed-use homes, and help categorize special assessments. This is also where proper documentation comes in handy, as it will make it easier for the tax professional to sort through everything.
Are HOA Dues Tax Deductible? Answered!
Taxes can be tricky, especially for those living in homeowners associations. Generally, homeowners can’t consider HOA fees tax-deductible if they use the property as their primary residence. There may be some exceptions, such as when they use their home as a rental property or a portion of it as a home office. When in doubt, it’s always best to ask a CPA.
National Realty Partners is a leading provider of HOA management services in Virginia. We help communities thrive. Call us today at 703-435-3800 or request a proposal online to get started!