If you decide to join a homeowners’ association (HOA), you agree not only to comply with the rules outlined in the covenants, conditions, and restrictions (CC&Rs) document but also to pay the fees the HOA charges. HOA fees typically cover services such as maintenance of common areas, landscaping, and other property maintenance responsibilities.
If you are like most homeowners, you may wonder: Are HOA fees tax deductible? Unfortunately, as with most legal concerns, the answer is, “It depends.” Our HOA property managers can help you determine whether or not your fees are tax deductible.
When You Live in Your HOA Year-Round
Unfortunately, if you live in your HOA year-round—meaning, it is your primary place of residence—your HOA fees are not tax deductible.
Though many aspects of owning a home are tax deductible, including mortgage interest and property taxes, the IRS does not accept deductions for HOA fees, as the agency considers such fees an assessment by a private entity.
Therefore, all the fees you pay towards your HOA, regardless of how they are used, are yours alone to bear. Also, HOAs are nonprofit organizations that affect the tax exceptions and, in this case, do not allow the assessments to be deductible.
When You Rent Out Your HOA Property
Circumstances change when you use your homeowners’ association property as a rental property. Because renting out a property is considered a “business” of sorts, and because business expenses may be deductible per the tax code.
A portion of the HOA fees are deductible when a property is used primarily as a rental property. In these instances, the IRS considers the HOA fees to be a deductible cost of maintenance.
However, you need to be cautious when accruing fees for your HOA property, as some expenses, such as those related to assessments geared toward property improvements, are not deductible.
When You Rent Out Your Property Part-Time
If you purchase a part-time home for, say, a winter or summer destination, and then you rent out your property for part of the year, things become more complicated. HOA fees, in these instances, are still sometimes partially deductible, but only for the time when the property was used as a rental. This is the same method that the IRS uses to determine how much of the cost of maintaining a person’s home office is tax-deductible.
Learn More About Your Tax Obligations and Possible Deductions
If you are considering buying a home in a community run by a homeowners’ association, it is important that you understand the full implications of doing so.
While HOA fees are often worth the cost (after all, they cover the cost of community maintenance, lawn care, trash services, and more), if you hope to deduct those costs, you need to know under which circumstances fees are deductible and under which they are not.
