Are HOA Fees Tax Deductible?
Written by
Yaël Bizouati-Kennedy
Edited by
Susan Kim
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Tax season is upon us, and many Americans are looking for ways to limit what they owe via credits or deductions. Yet, with ever-evolving regulations and sometimes arcane tax laws, it can be tricky to do so.
When it comes to homeowners association (HOA) fees, for example, it can be difficult to figure out which scenario may allow you to deduct these from your taxes.
As H&R Block explains, an HOA is “a governing body that sets specific rules and guidelines that you agree to abide by when you purchase property in a condominium, gated community, apartment or other type of planned development.” These fees are often used to pay for maintenance, landscaping and general upkeep of the community and common areas.
But are these tax deductible?
“As is often the case in federal tax, the answer is — it depends,” said Karen Wallace, assistant professor in Adelphi University’s Willumstad School of Business.
She added that whether HOA fees qualify as tax-deductible depends on whether the owner’s use of the property is personal or business. While the determination is straightforward when the property’s use is exclusively personal or business, the answer is more complicated when a property has both personal and business use characteristics. Let’s explore further.
In Which Scenarios Are HOA Fees Deductible?
When we’re talking about which HOA fees you can deduct on your taxes, it mainly comes down to two scenarios.
First — as True Tamplin, a certified educator in personal finance and founder of Finance Strategists explained — if you’re renting out a property and pay HOA fees for it, you can usually write these fees off as part of your rental business expenses.
“These fees are considered necessary for the maintenance and upkeep of the property, which generates income,” he said.
The second scenario is for individuals who have a home office. For instance, if a part of your home is dedicated to your business, and you’re also paying HOA fees, you might be able to deduct a slice of those fees, Tamplin added. “The catch is, it has to be directly related to the business part of your home.”
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According to Experian, the amount you can deduct may be based on and proportional to how much of your home you use for your business. For example, if your home office takes up 15% of your home, you may be able to deduct 15% of your HOA fees.
Spectrum Association Management also noted that to qualify, your home office has to be the primary location of your business — usually defined as the place where all the administrative tasks take place. In addition, if you store inventory at your house for your business, that square footage may also qualify, though the IRS has specific qualifications you must meet.
When Are the Fees Not Deductible?
On the other hand, if you’re just living in your place and not renting it out or using it for a business, the IRS isn’t going to give you a break on those HOA fees.
“And the same goes for if you have a second home or vacation spot that you’re not renting out,” Tamplin said.
However, if you rent your home for part of the year and live in it the rest of the time, things get a bit tricky and a deductions depends on several factors.
The IRS rules that if you rent a residence that you also use for yourself, limitations may apply to the rental expenses you can deduct. Specifically, the IRS determines you’re considered to use a dwelling unit as a residence if you use it for personal purposes during the tax year for a number of days that’s more than the greater of 14 days, or 10% of the total days you rent it to others at a fair rental price.
What Else Should Homeowners Consider?
Tamplin emphasized that because of the complexity and of these tax rules, it’s always beneficial to chat with a tax pro.
“They’re the experts and can help you figure out exactly what you can and can’t deduct, especially since tax rules can change,” he said, adding that keeping good records is another smart move.
“If you’re deducting expenses like HOA fees, you’ll want to have all your ducks in a row if the IRS ever wants to take a closer look,” Tamplin said. “And if you’re claiming a part of your home for business, make sure it really is just for business. The IRS has specific rules about what qualifies as a home office.”
For anyone renting out a property, just remember to only deduct HOA fees for the times your place was actually rented out. If you’re using it yourself for part of the year, you have to adjust those deductions accordingly.
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