When the holiday season approaches, many homeowners begin preparing for the year ahead. Contemplating New Year’s resolutions is common during this time, and a popular resolution is to become more financially stable.
One of the most satisfying ways to get money back into your pocket is through tax refunds. This poses the question of whether or not you can claim HOA fees on your taxes. While meeting with financial advisors is the best practice to determine the correct course of action, the basic answer to this question depends entirely on how the property is used. As a general rule, HOA fees are not deductible.
Thankfully, there are a few exceptions:
First, if the home is a rental property, the HOA fees are deductible because they are considered part of the rental property’s maintenance.
If the property is a second personal home that is also rented out, the homeowner can only deduct the HOA fees that apply during the time the property is used as a rental. For example, if you own a home on the coast that your family uses throughout the month of June, but rents out the remainder of the year, and your total assessment amount is $1,200, you could deduct $1,100.
If you are using a home as your primary residence while renting out a portion of the home, such as a garage, pool house, or a spare room, then that portion of your house’s HOA fees are deductible. If the total amount of rented space is 10%, then 10% of your HOA 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.
Secondly, if you own an investment property, you can deduct all HOA dues.
So, what if you don’t own a rental or investment property? Do you have no hope of a tax deduction? Not necessarily! Homeowners who are operating a business from home are likely to qualify for tax deductions on their HOA fees.
The percentage of your home occupied by the home office is the percentage that can be deducted from all your home’s expenses, including HOA fees. If your home office takes up 10% of your home’s total square footage, then you can deduct 10% of your HOA dues. 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 also store inventory at your house for your business, that square footage may also qualify, though the IRS has specific qualifications you must meet. A qualified tax professional will be able to advise you as to whether your inventory meets these qualifications.
While HOA fees function in many ways like taxes, they are not taxes because a private entity controls and administers them. As such, there can be some confusion regarding what constitutes as a tax deduction for HOA fees and what doesn’t. 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.
Note: This article is for educational purposes only. Spectrum Association Management encourages all homeowners to reach out to a tax professional for more information and to receive advice personalized to the homeowner’s exact situation.
