While many homeowners may want to claim HOA fees on their taxes, most are not able to do so. HOA fees can only be claimed on taxes if the home is used as a rental (both long-term or short-term), an investment property, or if a business is being operated from the home. For certain criteria, only a percentage of the fees will be deductible, and it is best to meet with a financial advisor to discuss options.
With the new year just around the corner, it is a good time to start thinking about your taxes. Most people are looking for ways to get a tax refund, and many wonder if Homeowners Association (HOA) fees come into play. Are they tax deductible? Short answer: No. However, there are some exceptions.
*Please Note: It is best to meet with a financial advisor to verify your position on this topic.
Rental Property
If your home is a full-time rental property, then the HOA fees are considered part of the rental property’s maintenance.
If your home is a second personal home that is also rented out, then the homeowner can claim the HOA fees when the property was used as a rental. For example, if you own a second home on the coast that you only use in the month of June, but it is rented out the rest of the year, then you can claim 11 of 12 months of the year. So, if your total HOA fees for the year are $1,200, then you can deduct $1,100.
This is also applicable to renting only part of your home. If you rent out a portion of your home, such as an office or spare room, then you can deduct the percentage of the rented space from your fees. If you rent out 20% of your home, then 20% of your fees are tax deductible.
Please know that to qualify for tax deductions of any type on rental property, your property has to be rented out at least 15 days per year.
Investment Property
If you own an investment property, then you are able to deduct 100% of dues.
Business
If you own a business that is operated from your home, then the space utilized for business is deductible from your HOA fees. For most qualifying homeowners, this area is a home office. Similar to renting out a portion of your home, the percentage of space is how much that can be deducted from your HOA fees in taxes. So, if your office is 10% of your home, then only 10% of the HOA fees can be declared a business expense.
In order to qualify, your home office has to be the primary location of your business, which is usually defined as the place where all the administrative tasks take place.
If you store business inventory in your home, that storage space may also qualify for a deduction, but the IRS has specific rules you must meet. A tax professional can help determine whether your inventory storage meets those requirements.
HOA fees may seem like taxes, but because there is a private entity that controls and administers them, they work differently. For the average homeowner, HOA fees cannot be deducted on your tax forms, yet in special circumstances – such as rentals, investment properties, or businesses – they can be. A basic rule of thumb is that if it can qualify as a business expense, the fee can qualify as a tax deduction. If it is a personal expense, it does not qualify.
For other helpful tips related to common questions about HOA community management, be sure to visit our blog, or if you’re looking for assistance managing your community contact us today for a free HOA management quote.
