Are HOA Fees Tax Deductible?

woman scratching head wondering if hoa fees are tax deductible

In general, homeowners association (HOA) fees aren't deductible on your federal tax return. There may be exceptions, however, if you rent the home or have a home office. Additionally, an HOA capital improvement assessment could increase the cost basis of your home, which could have several tax consequences.

Here's what you need to know about HOA fees and tax deductions.

Can You Deduct HOA Fees on Your Taxes?

Homeowners associations are legal entities that oversee and manage the community areas in neighborhoods and buildings. If you own a home or condo that's part of an HOA, you'll often have to pay monthly or quarterly HOA fees or dues.

Part of your HOA fee goes toward paying ongoing expenses. These operating funds cover the community's regular expenses, such as building maintenance, trash removal, snow plowing and utility payments. The rest is often set aside in a reserve account for less frequent repairs and emergency expenses, such as building a playground or replacing a community structure's roof.

In addition to your standard assessments—the HOA fees—an HOA may charge one-off special assessments. The limits for these can vary depending on where you live and the HOA's rules.

An emergency assessment might be required if the HOA doesn't have enough money in its reserve to cover an unexpected expense, such as restoring structures after a natural disaster. Or, an HOA may approve a capital improvement assessment to raise funds for a project that increases the communities' overall value, such as a new pool. Additionally, a homeowner could be charged a compliance or reimbursement assessment if they (or their guest) damage community property.

Just as homeowners who live outside an HOA can't deduct the cost of their utility bills, maintenance or home repairs, your HOA fees generally aren't tax-deductible expenses. However, there are several exceptions.

When Can I Claim HOA Fees on My Taxes?

While HOA fees can add to your monthly housing payments and usually aren't deductible as a personal expense, you might be able to write off the expense if you run a business or own an investment property.

You Work from Home

When you're self-employed and have a home office or use part of your home to store inventory or product samples, your HOA fees could be considered a business expense. The amount you can deduct may be based on and proportional to how much of your home you use for your business. For example, if your home office takes up 15% of your home, you may be able to deduct 15% of your HOA fees.

You Rent the Property

When you own and are renting out a property, the associated HOA fees may be deductible as a rental expense. If you rent the property for the entire year, all your HOA fees may be deductible. But if you only rent it for part of the year—perhaps it's a vacation home that you also use—then only a proportional amount of HOA fees may be deductible.

HOA Capital Improvement Assessments

HOA capital improvement assessments aren't tax-deductible, but they're worth mentioning because the improvement could increase the cost basis of your home. As a result, you may pay less in capital gains taxes when you sell the home. However, you may also have to pay more property taxes in the interim.

How to Deduct HOA Fees

Where and how you'll deduct HOA fees depends on your circumstances.

The home office deduction can be tricky to understand and calculate. You may want to research the requirements to ensure you qualify. IRS Publication 587 can help, and then determine whether the simplified or regular method will save you more. You'll then list the home office expense on your Schedule C.

For landlords, you can list your rental income and expenses in Part 1 of your Schedule E. However, the deductible amount may be a little trickier to determine if you only rented the home part of the year.

In either case, it may make sense to speak with a professional tax attorney or accountant who can offer you personalized advice. They may also be able to give you tax planning suggestions to limit how much you owe going forward.

Learn About Other Potential Tax Breaks

Deducting HOA fees or reducing them outright isn't the only way to save money. Whether you live in the home you own, it's an investment property or it's a vacation home that you occasionally visit, there are many potential tax breaks that could save you money. Understanding how these work could be an important part of managing your finances as a homeowner.