Owning a home comes with some great tax breaks. But is your HOA fee tax deductible? Learn more about HOAs and when you can get a tax break on your HOA fees.
You know the old saying: Nothing is certain but death and taxes. Although, there are some situations where your homeowners association (HOA) fees are at least tax deductible. So, what is an HOA, and when can you deduct your HOA fees from your taxes? We break it down for you so you’re not overpaying come tax season.
What is a homeowners association?
A homeowners association manages a neighborhood community or condo. Members of the HOA vote on board members to maintain the community, enforce rules, and settle disputes. The HOA will charge each resident an HOA fee which is divided into two accounts—a monthly expense account and a long-term reserves account. A properly managed HOA will develop a budget based on the current needs of the community, the forecasted future needs of the community, and potential emergencies.
Of course, sometimes events that are outside of the HOA’s control happen, such as a fire or natural disaster. When these expenses surpass the funds in emergency reserves, the HOA will charge a special assessment fee to the current residents to cover those costs.
What is an HOA fee used for?
HOA fees cover upkeep for common areas and buildings as well as any amenities available to residents like a gym or pool. Additionally, HOA fees go toward long-term repairs and replacements such as new roofs, plumbing, and pool resurfacing. Some HOAs even handle landscaping and snow removal on your property. If you’re in a condo, HOA fees will pay for a building manager, super, and doorman, if applicable. When you buy a property that is part of an HOA, you will receive a manual with bylaws and a Declaration of Covenants, Conditions, and Restrictions (CC&Rs) that spells out everything the HOA handles.
Is your HOA fee tax deductible?
The short answer is: it depends, but usually no. For first-time homebuyers, your HOA fees are almost never tax deductible. Additionally, if you use the home as your primary residence, your HOA fee won’t be tax deductible unless you work from home or run a business out of your home. If you work from home or have a home business, you can deduct a portion of your HOA fees—usually based on the square footage allocated to your office or business. HOA fees for secondary residences also aren’t tax deductible if you don’t rent out the property when you’re not using it.
Can you deduct your HOA fee if you own a rental property?
If you own a rental property, pretty much all the expenses associated with that rental are tax deductible. That includes the home’s routine maintenance and repairs, capital expenses, all your property taxes, and your HOA fees.
Can you deduct your HOA fee if you only rent your property part of the year?
If you only rent out your home during parts of the year, you can still claim your HOA fee as a deduction. However, you can only claim part of the costs, which will depend on the percentage of time it was rented out versus the percentage of time you occupied it.
What does the IRS consider personal use of a home?
If you have a house for rent but it’s sitting vacant, you can receive deductions for the home during the time it’s vacant. However, if you or someone you know stays in the home during that time, that would be considered personal use and you can’t make deductions. This also applies if someone you know is renting the home for less than the current rental market value.
Here’s where it gets a little tricky. If you have a second home that you rent out more than 14 days a year and occupy less than 15 days a year, it’s considered a rental property and you can deduct taxes normally. On the other hand, if you occupy it for more than 15 days or more than 10 percent of the days it’s rented out (whichever is greater), it’s technically personal use property. However, you can still write off your HOA fees, but only up to your rental income—meaning you can’t claim losses if your fees exceed your rental income.
How can buying a house lower your taxes?
Buying a house comes with some great tax deductions. Once you buy a home, you can deduct the mortgage interest, any mortgage points the lender charged you, the equity loan interest, home improvement interest, your property taxes, and a home office deduction if you freelance or run a business in that home. Additionally, you might be able to deduct a few of the selling costs and in some cases even your moving expenses. There are other possible deductions you might qualify for also. Owning a home not only comes with plenty of tax benefits, but you will also be building equity in your future.
Be sure to speak to a tax professional to confirm what you can deduct when you file your taxes.