Are HOA Fees Tax Deductible? – Ultimate Guide to HOA Dues and Tax Benefits

Thinking of buying a property in a high-class community with shared amenities like a park, a pool, and security, it’s not just the property price, but you must also take note of recurring costs, i.e., HOA fees. 

This money is pooled together to provide better and improved community services.  As the cost is mandatory to pay according to the government, thinking  “Are HOA fees tax deductible?” is a fair question.

However, there’s no guaranteed yes or no, as it depends on various situations. To clear out this concept, we did our research, and here’s the complete detail about “are association fees tax deductible” in this blog. 

What Are HOA Fees, and How Do They Work?

HOA Fees are generally called “Homeowners’ Association Fees”; it is an amount paid by the owners whose property comes under the homeowners association. These communities have first-class facilities like condos, parks, a security network, private shopping malls, and town houses.  

The HOA is collected to keep up these amenities in perfect condition. It helps to cover the cost of repairs and maintenance of shared spaces like landscaping, pools, clubhouses, and gyms. 

The IRS’s Homeowners Association fees tax deductible reports that the average fee paid by people in America is between $200-$400. The cost can go higher or lower depending on their state rules and demand.

This is how the HOA dues tax deductible works:

• Payment Frequency: HOA generally gathers fees according to a set timetable, usually every month, quarter, or year. 

• Requirement: When you purchase a property in a community governed by an HOA, paying the fees is mandatory. It’s a component of the contractual commitment you accept when buying the house.

• Fee Amount Varies: Depending on the community, property size, number of amenities, and overall value, the HOA fee varies.

• Special Assessment: The HOA fees may increase in case of an emergency, like roof damage or kitchen leakage, which can not be covered by funds reserved. 

So you can simply say that HOA dues are paid every month to help maintain the quality, appearance, and value of the entire community. But wait: “are HOA fees tax-deductible?” Let’s understand it in the following sections. 

Are Hoa Fees Tax Deductible for Primary Residence?

When people buy a property to make it their primary residence, they wonder: Are HOA fees deductible? The answer is no, as you are making the property your primary residence, which means you and your family members will use the amenities provided by the community. 

According to the government, every personal residence has to consider HOA fees as their living expenses, like utility bills and electricity. 

Let’s say you own a town house in a city community and pay $250 every month as house fees for maintenance of gyms, pools, and landscaping. This cost is not eligible for the federal income tax return. 

When Are Association Fees Tax Deductible?

The Federal government is very particular about home fees and does not pass any tax return when applied. However, some workarounds may allow for the returns. 

These are the circumstances when home owners association fees tax deductible:

Renting Out the Property 

Many people buy property as an investment and put it up for rental income or make it a vacation home for businesses like Airbnb. This makes the property a business entity with periodic fixed costs, and it allows you to turn your HOA fees into a business expense and file them for tax returns. 

Note:

You can definitely use the property for personal stay half of the year and give it up for rental for the rest of the year. In such a case, you must consult with an accountant to understand the rules and lay down proper documents. 

Here’s an example: You own a studio apartment in LA that earns you the rental income of $300 per month in HOA dues. Since you generate $3600 per year as rental income, you can deduct the amount as rental expense on your tax returns. 

Some Cases of Work From Home

Many business that runs from home or employees who permanently works from home can map out the portion or area directly used for business purposes. Make sure to have proper documents to claim for home office deduction in HOA fees.  

Note that it can be hard to get returns under this situation, and the space is required to be used regularly and extensively to be counted under business use. 

Here’s an example: You work as a freelancer with your own online digital business, and you have made an office room in your home for work. And let’s say that your home office set takes up 15% of the total area of your house, then you can claim for 15% deduction in HOA fees as your home office expenses. 

Property as an Investment

Whether it is a condo, a studio apartment, or a villa, if the owner has listed it as an investment property, all the costs, including HOA fees, will be deductible as expenses to maintain the property. 

Here’s a quick recap:

Are HOA fees tax deductible for:

• Personal Residence = NO
• Vacation Home = NO
• Rental Property = YES
• Investment Property = YES
• Work from Office Space = Depends 

Now that you know when HOA fees are deductible, let’s go ahead and look at the tips that will help you go through the process of “Are home association fees tax deductible” swiftly. 

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Tips to Claim HOA Dues Tax Deductible

Understanding complete legalities and rules about HOA fees can be intimidating. There are a lot of confusing questions, like: when are association fees tax deductible? What paperwork is required for HOA dues tax deductible? 

Well, the Internal Revenue Service (IRS) has laid down the guidelines regarding property and house tax that every citizen in the United States has to follow. To help you navigate the process smoothly, we have gathered insights from experts and written them as tips below: 

• Maintain Records: Keeping copies of HOA invoices, payment details, and other correspondence related to capital invested in property is a must. This record will help you when the IRS audits your HOA dues tax deductible. Also, keep your tax reference number to support future claims. 

• Read the IRS Rules Properly: The IRS is strict about the legalities, and to avoid any type of shortcomings, you must read the rules properly. As per IRS Publication 527, the rental income is accounted for with tax deductions. IRS Publication 587 says that to claim a return on home office expenses, the applicant must have solid proof and all paperwork. Make sure to check out more of these guidelines before applying for returns. 

• Apply with the Correct Tax Forms: Tax returns are classified into many sections. You need to know the category well and use the correct tax form to apply for returns. For example, if you are applying for rental expenses, you need to use the form Schedule E (Form 1040), which accounts for the Supplemental Income and Loss category. 

• Be Mindful of Special Assessments: There may be times when your HOA asks for special assessments for major improvements like solar panel installation or a new roof, and then you might not be eligible to deduct the cost. 

However, you can capitalize it and add this cost to your property’s value, which can be beneficial when you sell. In the cases of special assessments, make sure to check with tax advisors. 

By following the above-written tips and regularly keeping up with IRS guidelines, you will stay compliant and make the most out of HOA dues tax deductible. 

Common Mistakes to Avoid When Claiming Homeowners Association Fees Tax Deductible

Claiming tax deduction HOA fees might seem to be easy; however, you can get caught up in the process, which can cost audits, fines, or rejection of tax returns. Here are some frequent mistakes to avoid when claiming Homeowners Association fees as tax deductible:

• Wrong Classification of Property: One mistake people often make is by deducting HOA fees for their primary residence. But remember that you can only claim returns for investment and rental properly. You must avoid this mistake, else the IRS will charge a fine for your application. 

• Forgetting to Mention Partial Rental or Mixed Use: If you use the property for some part of the year, then put it up for business for another part of the year, you need to calculate the days and apply for the dues accordingly. Not mentioning accurate details may result negatively. 

• Not Recording Proper Documents: Failing to provide proper certificates and documents, such as HOA invoices, payment receipts, rental income statements, and other business paperwork, may revoke your application. 

• Using Wrong Tax Forms: Taxpayers don’t often check out the section of tax they are applying for, and use the wrong tax forms. You must avoid this by reading the guidelines or consulting with a tax advisor, as wrong paperwork can block your deductions. 

Wrapping Up!

So, coming down to the question: Are HOA Fees Tax Deductible? Yes, when you apply for rental and investment property fees, and not entertained in case of primary residence. 

That being said, homeowners must read out IRS guidelines and take advantage of the HOA Tax deduction. We have explained everything from tips to claim tax returns to the scenarios where the returns are applicable and not in this blog. 

Hopefully, this will help you navigate through the process easily. Share the info with your friends and family, too!

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