Are HOA Fees Tax-Deductible? What Homeowners Need to Know

If you are required to pay HOA fees, you may have asked yourself at least once whether you can deduct HOA fees from your taxes. Yes, it's a valid question. HOA fees can range from around $100 to more than $1,000 per month, making them a significant expense for many homeowners.

The "short answer": It depends. While not all the costs of the HOA are deductible, in some cases, such as if you have a business at home or are renting, a portion of your HOA costs can be a deductible expense.

This guide explains the timing of the deductibility of your HOA fees, how to figure out your deduction, and errors to avoid when filing. Understanding these rules before filing can help you avoid mistakes and claim any deductions you're entitled to.

The General Rule: HOA Fees Are Not Deductible for Personal Residences

First of all, the baseline. If you're a homeowner and reside in your home as your principal place of residence, your HOA fees are also a personal expense, which is not something the IRS will allow you to deduct.

This is a big shock to many homeowners. While HOA fees may seem like a part of owning real estate, the IRS considers them to be akin to paying bills or buying groceries, and therefore an expense of living, rather than a business expense.

But it's a different story when your home begins generating income.

When HOA Fees Are Deductible: 3 Situations That Qualify

You Rent Out Your Property

HOA fees are a legitimate expense if you rent out your home or condo, whether it's long-term or you're a short-term rental owner on platforms such as Airbnb. HOA fees are ordinary and necessary expenses of owning a rental property, and the IRS allows landlords to deduct them.

Real-life scenario: You are a condo owner in a managed community that charges $400 per month for its HOA. Rent it out all year round. That's $4,800 that you can subtract directly from your rental income on Schedule E, year after year.

If you rent it only part of the year, you must prorate the deduction for the days when you rent it out, and the days when you personally use it. Because the deduction must be prorated accurately, it's important to keep detailed records of both rental and personal use.

You Work from Home and Have a Dedicated Office Space

If you're self-employed and work in a part of your home regularly and exclusively for your business, you may qualify for the home office deduction. This rule allows a percentage of your home expenses to be deducted, including HOA fees.

How it works: You can deduct 10% of your annual home office expenses as a business expense if your home office is 10% of the total square footage in your home.

The word here is "exclusively. Your home office should be for business, and not used as a guest room or for homework. The IRS takes this requirement seriously.

Note: Deduction is available for the self-employed and business owners. Under the current tax law (Tax Cuts and Jobs Act, 2017), if you work remotely for another employer, you are not allowed to claim the home office deduction.

Mixed-Use Property (Partial Rental or Business Use)

A few homeowners have homes that are used for both their personal and business needs. For such cases, the deduction is apportioned. The percentage of your HOA fees is only deducted for the business or rental income of the property.

Keep records throughout the year to document how the property was used and how you calculated the deductible portion of your expenses. Professional accounting services can also help maintain accurate records and support your deductions.

How HOA Tax Deductions Work in Practice

While it is one thing to grasp the concept of HOA tax rules, it's a different thing to understand them and apply them when it's time to file. Simply put, here's a breakdown:

Rental property owners: Deduct HOA fees on Schedule E of your Federal tax return as a rental expense.

If you are self-employed and work from home, record the portion of your HOA fees in the home office line of Form 8829, which is attached to Schedule C.

Mixed-use properties: Determine the percentage of business/rental use and use that percentage of the total annual HOA fees paid.

Filing these deductions correctly is important, as errors on Schedule E or Form 8829 tax return filing services can lead to delays, amended returns, or additional IRS scrutiny.

Special HOA Assessments: A Nuanced Area

In addition to dues, many homeowner associations impose special assessments, which are lump-sum fees for large-scale projects such as replacing roofs, surfacing the parking lots, or upgrading building infrastructure.

If you are a rental property owner, special assessments may be a deductible expense, depending on whether it is a repair (which you should deduct in the year it is spent) or a capital improvement (which you should depreciate over time). This is important and frequently misunderstood.

For instance, if there is major storm damage to the roof, repairing it could be 100% deductible the year it is paid. However, a complete replacement of the roof would probably have to be capitalized and depreciated as a residential rental improvement over a period of 27.5 years.

Common Mistakes Homeowners Make with HOA Tax Deductions

These are the mistakes that can be found most frequently, and that you don't want to make:

1. Claiming HOA fees paid for a primary residence that has no business use, which is not allowed and may lead to an audit.

2. Not correctly prorating expenses when using a property for both personal and rental purposes.

3. Treating special assessments as an ordinary deduction without determining whether they should be classified as repairs or capital improvements.

4. Not maintaining receipts or HOA statements as supporting documentation, which may be required during an IRS audit.

What If You're a Business Entity That Owns Property?

The rules are a little different if you own your real estate through an LLC or S Corp or any other business entity. If the property is used for a business activity, the HOA fees paid on the property are generally deductible as an ordinary business expense.

If your property is owned through an LLC, keeping your business compliant with a registered agent service can also help ensure you receive important legal and tax-related notices on time.

Don't Overlook State Tax Rules

While the federal tax rules provide the foundation, your state may have state rules regarding property deductions. Some states offer more liberal rental deductions or allow deductions for a home-based business.

Because state tax treatment can vary, review your state's rules to determine whether additional deductions may apply. For IRS guidelines on rental income and expenses, the IRS Publication 527 (Residential Rental Property) is the authoritative source.

Frequently Asked Questions

Can I deduct HOA fees if I work from home as an employee?

No. As of 2018, unreimbursed home office expenses (including a portion of homeowner's association fees) are no longer deductible on Federal returns for W-2 employees. This benefit is only offered to those who are self-employed or business owners.

What records should I keep to support an HOA deduction?

Save annual statements, receipts of payments, and any correspondence concerning special assessments. For those who are doing the home office or rental portion, keep a clear log of how the square footage was calculated and the days that you personally used the space compared to the days that it was on rent.

Are HOA fees deductible on vacation homes?

This depends on the use of the property. If it is rented out for over 14 days a year and is used personally for less than 14 days or 10% of the rental days, it is considered a rental property and the HOA fees are deductible. Only a proportion may be eligible if personal use is greater. It's referred to as the vacation home rule in IRC Section 280A.

Can I deduct HOA fees from a previous year that I forgot to claim?

Yes, within limits. Federal returns can normally be amended for a period of three years from the filing date. Consideration should be given to amended returns (Form 1040-X) if an allowed deduction was not claimed on a previous tax return.

Do HOA fees count toward property tax deductions?

No. HOA fees are not included in property taxes and are not considered by the IRS to be part of property taxes. Property taxes (up to $10,000 per year per SALT limit) may be deductible for personal homes but not for homes in a homeowners' association.

Need Some Assistance for This?

HOA deductions are part of the middle ground of tax, and it's in the middle that errors occur. If you own a home or property, or are a freelancer or landlord, you may not be aware of how important it is to get your filing right.

At Revive Business, we help property owners and entrepreneurs navigate these decisions with confidence. Whether you're a landlord, self-employed professional, or property owner with mixed-use expenses, we can help you navigate the rules and file with confidence. 

Contact us today for a consultation, and let’s make sure your tax situation is working as hard as you are.