Are HOA Fees Tax Deductible?

On November 7th, 2012, posted in: Community Management, HOA

HOA and TaxesIf you buy a house or a condo that’s in a large development, there may be a homeowner’s association that takes care of maintenance of common areas, snow removal and other things in the development. Homeowners pay for these services through a fee levied monthly, quarterly or annually. How you use the property determines whether the HOA fee is tax-deductible or not.

If you live in your property year-round, then the HOA fees are not deductible. Though many costs of owning a home are deductible on your income taxes, including your mortgage interest and property taxes, the IRS does not allow you to deduct HOA fees, because they are considered an assessment by a private entity.

If the home is a rental property, however, HOA fees do become deductible. In this case, the IRS considers HOA fees to be a deductible cost of maintaining the rental property You report the fees on Schedule E on your tax return.

If your property is a second home or vacation home that you use personally but also rent out, things get a bit more complicated. You still can deduct HOA fees but only for the time the property is used as a rental. Say, for example, you live in the house from December through March and rent it out the rest of the year. In that case, you would be able to deduct two-thirds of your HOA fees, because you use it as a rental eight months out of 12. If your annual HOA fees are $1,000, approximately $667 would be deductible on your tax return.

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