Depending on where you are living, there is a good chance that if you own a condo or a home you are also going to be paying a fee every month to a Home Owners Association (HOA).
This HOA fee has the use of being used for covering repairs as well as maintenance outside your house or in communal spaces in your area.
A lot of homeowners hope that they are able to lower the amount of taxable income they have because of these HOA fees, however the answer to this can depend a lot on the individual’s circumstances.
This article aims to help you understand when HOA fees will be tax-deductible and help you work out how much you will be able to deduct from your taxable income using your HOA fees.
If you have any questions about HOA fees and taxes, keep reading!
How To Find Out If Your HOA Fees Are Tax Deductible?
When it comes to tax season, it can be a very frustrating time for homeowners due to all the monthly bills which are already coming out and causing a potential burden.
On top of all of these bill there is often the HOA fees which depending on the area you are living in can be quite significant.
This is why so many homeowners wonder if one of these fees, for example, the HOA fees could be deducted to make their life slightly easier.
This is especially true if you are living in an area with high HOA fees as they can really accumulate throughout the year.
Knowing if the HOA fees are deductible is unfortunately not a simple yes or no question and depends on how you use your home.
We will go through all the different circumstances and how they affect your HOA fees.
Using Your Home Privately Year Round
When you are living in your house privately throughout the whole year as your primary area of residence, unfortunately you will be unable to deduct the HOA fees from your annual taxes.
This is due to the HOA being seen as a privately owned entity and even though some money goes to public areas, it is still seen by the IRS as non-deductible.
This is unfortunately the category which most homeowners will fit into as this is how most people use their houses.
So while the HOA fees are non-deductible for how the house is used, do not worry as there are some other fees instead which can be deducted depending on different factors.
For example, you could get some of the mortgage interest or your real estate tax deducted but the best way to work out if you are eligible for this is to directly contact a tax professional to assess your situation.
Using Your Home As A Rental Property
So if you own a home but you are not using it year-round and instead using it as a rental property, does this mean that you will still be unable to deduct your HOA fees.
This is when it can get significantly more complicated. If you are renting out your property to tenants the rules for paying taxes change significantly.
The IRS sees the cost of an HOA fee as a necessary expense when it comes to maintaining a property that is a rental.
And any money that is spent on maintaining your rental property will be eligible for a tax deduction, including these HOA fees. So yes HOA fees can be deductible if your house is a rental property.
You also do not need to have the whole house rented out, it can just be a part of the house, for example a room, a basement, a garage, as long as it is on your property.
The amount of fees you can deduct depends on the amount of your house which is rented out.
There are exceptions to this however, if there is a special assessment which leads to need for improvement, these are non-tax-deductible, but these should be covered using the HOA funds instead.
This will come out of the HOA reserve fund.
When the money is used for covering repairs it is tax-deductible, however, if it is utilized for improvements it will not be.
Using Your Home For Business
If your house is being used for business, the rules can change.
You will not be able to deduct all of the HOA fees, but you will be able to deduct some of them, this is especially useful if you itemize deductions.
Whatever portion of the property which is being used as part of the business is deductible.
For example, this applies if you have an office in your home.
So if 10% of the house is an office space, you should be able to deduct a relative portion of your HOA fees through this.
This is similar when it comes to property taxes, mortgage interest, and sometimes even utilities.
If you have questions you can get assessed by a professional to find out exactly how much you could save.
Using Your Home As A Vacation Or Part Time Home
This is in reference to homeowners who do not reside in their house for the majority of the year and treat the house as a vacation home.
This means that they usually rent out the house during the unused time periods.
This is similar to the rental property in that the property can only deduct HOA fees during the months when it was being treated as a rental but not when you are living in it.
For example, if you live in the house for half the year, the other half of the year, the HOA fees will be tax deductible.
So these are all the circumstances when HOA fees are and are not deductible.
It is always safer to assume they are not deductible, but if you think you fit in any of the categories where you could be able to deduct, contact a professional to see exactly how much you could save!