Tax season is always a stressful time of the year. One of the questions HOA residents commonly ask is, “Are HOA fees tax deductible?” The answer, though, is not as simple.
In this article:
Are HOA Fees Tax Deductible?
A homeowners association runs a community by imposing certain rules, preserving its aesthetics, and maintaining various aspects of the neighborhood. It does this with the help of HOA dues — fees that the association collects from members. These fees are used to fund the association’s maintenance and operations.
Those who live within an HOA community, though, often wonder, “Are HOA dues tax deductible?” The short answer is no. If you use the property as your primary residence, then your HOA fees are not deductible. There are certain exceptions, though, such as if you use the property as a rental property or a place of work.
Are Condo Fees Tax Deductible?
Condo fees essentially serve the same purpose as HOA fees, except condo fees are charged to unit owners by a condo owner’s association (COA). When you join a COA, you agree to abide by its covenants, one of which is to pay condo fees.
Are condo fees considered rent? No, condo fees are not the same as rent. These fees go into the maintenance and upkeep of common areas, which condo owners share joint ownership of. In a COA, the common areas belong to the owners, as opposed to an HOA, where the common areas belong to the association itself.
When it comes to taxes, a similar rule applies to condo fees as with homeowners association dues tax deduction. You cannot deduct condo fees from your taxes because the IRS deems this as a personal expense. Condo fees, just like HOA fees, cover the day-to-day maintenance expenses of a condo building, such as cleaning services and snow removal. Since personal expenses are not tax deductible, there is no reason to make condo fees deductible because they pay for virtually the same things.
Can You Write Off HOA Fees If You Work from Home?
Yes, you can write off HOA fees if you use your home as an office. This is an exception to the rule.
You can deduct certain expenses, including HOA fees, related to your home office. Though, it is important to keep in mind that even this exception has requirements.
For one thing, according to the Tax Cuts and Jobs Act, you must be self-employed to enjoy this benefit. If you are employed and just working remotely from your home, this does not apply to you.
Your home office must also serve as your primary place of business. That means it should be where you perform administrative work or meet with customers.
Additionally, it should be a designated area in your home. It can be anywhere from a corner desk to an entire room. But, it cannot be something as small as just using your laptop on your bed or sofa. You may also need to supply photographic evidence supporting your claim of a home office, especially in the event of an audit.
You can deduct expenses equivalent to the percentage of your home office. For example, if you claim to use 10 percent of your home as an office, you can write off 10 percent of your expenses. That includes your property taxes, mortgage interest, utilities, repairs, and HOA fees.
Are HOA Fees Tax Deductible for Rental Property?
Yes, you can deduct your HOA fees from your taxes if you use your home as a rental property. The IRS considers HOA fees as a rental expense, which means you can write them off from your taxes. Therefore, if you use the home exclusively as a rental property, you can deduct 100 percent of your HOA fees.
Rental property tax deductions also apply if you rent out only a portion of your house, such as a basement apartment or garage. In that case, you can deduct a portion of your HOA fees equal to the percentage of your house that you use as a rental space.
The concept persists if you use the property as a rental part-time. For example, if you reside in the property 50 percent of the time and use it as a rental for the other 50 percent, you can deduct 50 percent of expenses, including HOA fees.
What about condo fees? Is condo fees tax deductible on a rental property? Yes, if you rent out the condo unit, you can also deduct condo fees from your taxes. It works in a similar fashion as HOA fees.
What Expenses Can You Write Off on a Rental Property?
Apart from HOA or condo fees, you may deduct other expenses from your taxes if you use the property as a rental. This includes your property tax, mortgage interest, depreciation, operating expenses, and repairs.
You may write off ordinary and necessary expenses for the maintenance and management of your rental property. Ordinary expenses are common expenses, i.e. generally accepted expenses in the business. On the other hand, necessary expenses are expenses like interest, taxes, insurance, utilities, maintenance, and advertising.
Although you can deduct the cost of materials required for the maintenance and repair of your rental property, you cannot deduct expenses for improvements.
Can You Write Off Special Assessments on Taxes?
This is another common question many homeowners ask. Are assessments tax deductible? Homeowners associations typically charge special assessments to cover unexpected expenses. As a rule of thumb, you cannot write off special assessments on taxes. If you rent out the property, you might be able to deduct it if the assessment is used for maintenance and repairs. But, if it is used for improvements, it is not tax-deductible.
How Do I Deduct HOA Fees?
Assuming you qualify for the deduction, you must report the HOA fees on your Schedule E (form 1040). This is the form you use to report your income or loss from different classes, such as partnerships, royalties, estates, S corporations, and trusts.
It also applies to rental real estate. You should do this when you submit your HOA tax return.
According to the IRS, you can deduct up to $25,000 if you are actively engaged in managing your rental property. Should you suffer a loss for the year, though, you can carry over the excess to the following year. For example, if you recorded a loss of $35,000, you can deduct $25,000 the current year and deduct the remaining $10,000 the next year.
Is HOA Tax Deductible? Answered!
Are HOA fees tax deductible? It depends. Generally, you cannot deduct HOA fees from your taxes, though this comes with a few exceptions, as discussed above. It is always best to seek help from a tax professional like CSM when preparing your taxes, though. This way, you can avoid issues with the IRS.
Self-managed communities and HOA management companies can benefit from the HOA management solutions Clark Simson Miller provides, including accounting and financial management. Our software makes it easy to stay on top of your financials, which, in turn, makes tax season a breeze. Call us today at 865.315.7505 or contact us online for a free demo.