With tax season coming up fast, many people are looking for any advantage they can find when it comes to claiming deductions and whittling down their tax bill. Given the complex nature of our tax system, it can be easy to miss any number of legal deductions that may not have considered before, and there can be a lot of questions about what sort of deductions may or may not be allowable.
The answer? For the most part no, but there are exceptions.
Every homeowner’s association (HOA) is different, but there are several situations in which you can deduct some or all of your HOA fees. First, though, let’s take a look at what an HOA is, what they offer, and what that can mean for you come April 15.
When you purchase property in certain neighborhoods, gated communities, condominiums, or other planned developments, you can be required to also join that community’s HOA and abide by their rules and regulations. Often, regulations require maintaining a certain level of property value by staying on top of the property’s upkeep and appearance.
Belonging to an HOA also means paying fees or dues. These are usually used to pay for common services such as landscaping, trash removal, snow plowing, and general maintenance. They also often pay for shared amenities including community pools, playgrounds, parks, and clubhouses. On occasion, a portion of your HOA fee is placed into a savings account to help fund larger projects such as repaving, sewer line upgrades, or community expansion.
An individual property owner may be able to find some allowable deductions for home maintenance or improvement but, with regard to HOA fees, those are generally not 100% deductible. Considering that some HOA fees can run from hundreds to thousands of dollars per year, it may already feel somewhat like dealing with taxes. Still, it is possible to deduct certain portions of those fees in your next IRS filing.
If your property is used solely for rental purposes, the IRS will allow you to deduct the entirety of your HOA fees as a rental expense. However, any special fees or portions used as a special assessment for improvements would not be allowable. That said, in many cases, you should be able to recover a share of the cost for improvements by taking depreciation.
If the property you’re seeking to claim HOA fee-related deductions for is your primary residence, you will not be able to claim those fees, but if you rent out that property for part of the year you can deduct a portion of those fees equal to the time the property was rented.
What if you rent out part of your property, but use the rest as your primary residence? You should be able to deduct a portion of the HOA fees for your property equal to the portion of the property being rented out.
If you are self-employed and have a home office, you can deduct some of your expenses related to that home office — including HOA fees. Your office has to be your primary place of business or, at least, where you meet clients or take care of administrative tasks. While the home office you claim does not need to be an entire room, it does have to be a distinct space used solely for business. For example, an office taking up half of a basement or a desk in the corner of a bedroom would qualify, but simply using a laptop on the couch would not. Also note that in case of an audit, you may need to provide photographic proof that your home office is what you say it is.
As far as home office deductions go, you are allowed to deduct home expenses equal to the portion of your home office. If you’re claiming that 10% of your home is being used as your home office, you can deduct 10% of your property taxes, mortgage interest, repairs, and utilities. You can also deduct 10% of your HOA fees.
It is important to remember that, according to 2018’s Tax Cuts and Jobs Act, this deduction is only allowable for those who are self-employed. If you are working remotely for an employer, these deductions do not apply.
If you are using part of your home for warehousing inventory, you can take similar deductions based on the portion of your home being used for this purpose. There are restrictions, of course, and you have to meet certain IRS qualifications such as being in the retail or wholesale business and have no other place of business besides your home.
You should consult a tax expert for more information, and also check your HOA agreement to make sure you are not violating any regulations.
Belonging to a homeowner’s association can be a bit of a mixed bag. While there are benefits in terms of maintaining property values and enjoying HOA-funded services, the costs can sometimes run high. While there are restrictions on how much of your HOA dues or fees can be deducted from your taxes, it’s good to know that there are options for certain situations.
When claiming any of the above-mentioned deductions, make sure to check with your tax expert to be certain you are doing it in an appropriate and legal manner. They may even have some suggestions for further deductions you might have missed.