Anyone would want to save as much money as they can when paying taxes. Because of this, many HOA residents may wonder if their HOA dues can help lower their tax bill. However, are homeowners’ association fees tax-deductible under IRS rules?
What are Homeowners Association Fees?
Also called HOA dues, homeowner association fees are the regular payments homeowners make to the HOA. This is the association’s main source of revenue, and it helps cover all the expenses needed to run your community.
Depending on the neighborhood, these dues may cover common area maintenance and repairs, landscaping services, administrative costs, and reserve fund contributions, among other expenses.
Are HOA Fees Tax-Deductible for Primary Residence?
Are homeowners’ association fees tax-deductible for people who live in their property that’s part of an HOA community?
In general, the answer would be “no”.
HOA fees are usually categorized as personal living expenses under IRS rules. Even though they support community operations and keep the community running, homeowners’ association fees are not tax-deductible. It’s treated similarly to a person’s other living expenses, such as utilities.
Are Condo Association Fees Tax-Deductible?
Many condo owners also have this same question as those residing in HOA communities. However, in most cases, the tax rules for condo fees are the same as or similar to those for HOA fees.
If a condo owner uses the unit as their primary residence, the monthly or quarterly condo fees are not deductible. They are seen as personal living expenses, even though these fees cover building maintenance and common utility upkeep.
Are HOA Fees Tax-Deductible if You Rent Out a Property?
There are cases where homeowners who are paying the dues rent out their homes full-time. In such cases, the homeowner uses these properties to generate rental income. Because of this, you will have to follow an entirely different tax treatment.
For rental properties, HOA fees are no longer categorized as personal living expenses. Instead, it now falls under deductible operating income. You can deduct the costs of these HOA assessments against the rental income you collect from the property.
Are HOA Fees Deductible if You Partially Use and Rent Out Your Home?
A more complicated scenario involves renting out a property part-time. Are HOA fees tax-deductible for a primary residence if you rent out a property?
In these cases, the homeowner is not allowed to deduct the full amount of HOA dues they need to pay for the entire year. Instead, they need to compute how much time the property was used as a rental and how much time it was used personally. The allowed deductible depends on the time when the home was used to produce income.
A simple example is a homeowner renting out their home for six months and living in it for the other half of the year. In this scenario, they can only deduct HOA fees during those six months.
However, the computation can become even more complex, especially when renting out temporary rooms or other parts of the home, such as the basement.
Can You Write Off HOA Dues for a Home Office?
Many may wonder if, under IRS rules, homeowners who work from home and use their homes as their offices can write off HOA dues. This is another complex scenario in which a portion of the homeowners’ association dues may be considered home office expenses.
However, if you’re a remote worker, don’t expect this to be automatic. There are some requirements that would qualify a home office. In general, to be considered a home office, you will need to meet specific business-use requirements.
If your home qualifies, the homeowner may be able to deduct a portion of their related home expenses, including HOA dues, when filing taxes.
What Records Should Homeowners Keep?
When tax season comes up, HOA residents need to prepare all their requirements if they want to deduct HOA fees from their taxes. They will need proper preparation and documentation to make this valid. This is even more important for income-generating properties and part-time rentals.
Here are some records you will need to keep to make tax filing easier:
HOA Statements and Payment Records
If you want to specifically deduct HOA dues from your tax payment, you need to know the total amount incurred. Homeowners will have to keep their statements showing how much the HOA has billed them for regular assessments. With this, they will also need to maintain payment records as proof of having fulfilled their financial obligations to the HOA.
Rental Income and Lease Documents
These records apply to those renting out their properties. They should always have their lease agreements in hand. Rental income should also be recorded, as it shows that the property is generating income as well as the amount it makes throughout the year.
For short-term rental properties, it would also be useful to have a booking calendar and your corresponding payment records.
Home Office Records
Keeping home office records applies to people who use their homes as a place of business. Those who want to claim a home office deduction must keep records that include the size of the workspace and how it’s used. It should also show what percentage of the property is used as a home versus how much of it is personal living space.
These records help you check whether your workspace qualifies as a home office eligible for a deduction.
Homeowners who claim a home office deduction should keep records showing the size and use of the workspace. This may include measurements, business records, and calculations showing what percentage of the home is used for qualifying business purposes.
Can You Write Off HOA Fees?
Tax rules can get tricky once a home has more than one purpose. When HOA dues connect to rental income or business use, good records and professional guidance can help homeowners claim the right amount without overreaching.
CWD Group offers HOA management services to community associations in Oregon and Washington. Call us today at 503-488-2008 or contact us online!
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