Homeowners association (HOA) fees are a common expense for those living in condominiums, townhouses and planned communities that need to maintain shared amenities. However, when tax season arrives, many homeowners wonder if their homeowner’s association fees are tax deductible. The short answer, for most homeowners, is that HOA fees are not tax-deductible. However, homeowners who rent properties or conduct business from home may qualify for certain deductions.
A financial advisor can help you determine what qualifies for deductions and how to maximize your tax savings.
Are HOA Fees Tax-Deductible?
For most homeowners, HOA fees are considered personal expenses, meaning that they are not deductible on a federal tax return. The IRS does not typically allow deductions for maintenance or association fees related to a primary residence. However, there are some exceptions.
HOA Fees for Rental Properties
If a property is used as a rental, HOA fees may be deductible as part of the cost of maintaining the rental. Since rental income is taxable, the IRS offers several rental property tax deductions including HOA fees.
- To qualify, the property must be rented out for a portion of the year, and the fees must be directly related to maintaining the rental.
- If the property is only rented for part of the year and used personally for the rest, homeowners can only deduct a portion of the HOA fees based on the percentage of time the property is rented.
- These deductions can be claimed on Schedule E of the tax return, which is used for reporting rental income and expenses.
HOA Fees for a Home Office
Homeowners who use part of their residence exclusively for business purposes may be able to deduct a portion of their HOA fees under the home office tax deduction. This applies to self-employed individuals or business owners who operate a business from their home.
- To qualify, the home office must be used regularly and exclusively for conducting business.
- The percentage of the home used for business determines the portion of HOA fees that can be deducted. For example, if a home office occupies 10% of a residence, then 10% of the HOA fees may be deducted.
- This deduction is reported on Form 8829, which calculates the expenses for business use of a home.
HOA Fees for Property Investment
Investors who purchase properties in HOA-managed communities as part of their investment portfolio may also qualify for deductions. If the property is used as an investment rather than a primary residence, expenses related to maintaining the property, including HOA fees, may be deductible.
- This applies to real estate investors who hold properties for income generation, whether through short-term rentals or long-term leasing.
- In this case, HOA fees are classified as operating expenses, similar to property management fees.
- Real estate professionals who actively manage their rental properties may also be eligible for additional tax deductions beyond HOA fees.
Home Expenses That Are Tax Deductible
While HOA fees are generally not deductible for most homeowners, there are several other home-related expenses that may qualify for tax deductions. These deductions can help homeowners reduce their taxable income and save money on their tax bill.
- Mortgage interest. Homeowners who itemize their deductions can deduct interest paid on a mortgage loan. The deduction applies to interest paid on loans up to $750,000 for single filers and married couples filing jointly. For homeowners who purchased their property before December 15, 2017, the deduction limit is $1 million.
- Property taxes. State and local property taxes are deductible under the State and Local Tax (SALT) deduction. However, this deduction is capped at $10,000 for single filers and married couples filing jointly or $5,000 for married individuals filing separately.
- Home equity loan or HELOC interest. Interest paid on a home equity loan or home equity line of credit is deductible if the loan was used to buy, build or improve the home. If the loan is used for personal expenses, such as paying off credit card debt, the interest is not deductible.
- Home Office Expenses. Homeowners who use part of their home exclusively for business purposes may be eligible for the home office deduction. This deduction can cover a portion of rent or mortgage interest, utilities and maintenance expenses. Employees working remotely do not qualify for this deduction.
Bottom Line
In most cases, homeowner’s association fees are not tax deductible. However, for rental properties, home offices or real estate investments, these fees may qualify as deductions. While there are limitations, homeowners may still take advantage of other home-related tax deductions, including mortgage interest, property taxes and energy-efficient home improvements. Working with a tax consultant can provide additional insights into the deductions available to you.
Tips for Homebuyers
- A financial advisor can help you create a financial plan for your homeownership goals that also accounts for taxes. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you want to figure out how much you can spend on a home, SmartAsset’s affordability calculator can help you estimate how much house you can afford based on several key inputs.
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