An important part of living in an HOA community is paying regular fees and assessments. These fees contribute to the upkeep of common properties within the community, promoting a higher quality of life while keeping property values high. In other words, these expenses can actually be very beneficial to homeowners, albeit indirectly.
A common question about HOA fees: Can they be deducted from your taxes? The answer to this question is usually no, but there are some noteworthy exceptions.
In this post, we’ll highlight some of the scenarios in which HOA fees can prove tax deductible. With specific questions about HOA fees in your Association, don’t hesitate to contact your management team directly. If you’re in the Carolinas, reach out to Kuester Management Group. We proudly provide HOA Management in Charlotte NC, Huntersville NC, Myrtle Beach SC, and HOA management in Fort Mill SC. And for personalized advice about your own tax return, reach out to a tax prep expert.
Are You Allowed to Count HOA Fees as a Tax Deduction?
Here’s a good way to think about this question: Homeowners typically aren’t allowed to deduct expenses such as home repairs, the cost of utilities, or expenses incurred as a result of basic home maintenance. The same is true of HOA fees. And yet, in each of these cases, there are exceptions to the rule.
Working from Home
If you work from home, or if you are self-employed and use your home to store products or supplies, then you may qualify for certain home office deductions. These deductions can include homeowners association fees, which may be counted among your business expenses.
Generally, you’ll be able to deduct a percentage of your HOA fees, equivalent to the percentage of your home that you use for business purposes. For example, if 10 percent of your home’s square footage is devoted to office space, you can deduct 10 percent of your HOA fees.
If you own a home and rent it out, you may be able to deduct HOA fees as necessary rental expenses. If you rent out the home all year long, you can typically deduct your HOA fees in their totality. But if you only rent seasonally, you’ll have to deduct a percentage that lines up with how often you rent out the home. So if you rent your home for three months out of the year, you can deduct 25 percent of your total HOA expense.
Additional Questions About Property Taxes and Your HOA Fees
What is included in most HOA fees?
Typically, HOA fees include money set aside for major repairs, for upcoming capital improvement projects, and for the maintenance of shared properties within the HOA. This includes operating expenses related to your pool, tennis courts, or club house, plus things like public sidewalks, parking lots, and green spaces.
Do HOA fees include property taxes?
HOA fees are separate from your property taxes. in other words, you pay HOA fees in addition to the taxes levied by your state, city, or county.
Is home insurance tax deductible?
This is a common, related question, and the short answer is: Not often. In fact, you can never deduct homeowners insurance costs for your primary residence. The only time you can deduct homeowners insurance is when you’re generating rental income. In situations involving rental income, you can count homeowners insurance among your expenses, which means a possible tax break.
Are HOA fees negotiable?
While HOA fees are generally considered non-negotiable, many HOAs will extend some flexibility to homeowners or families who are facing particular financial hardship.
Are HOA fees included in the mortgage?
Generally speaking, HOA fees are not rolled into your regular mortgage payments. You’ll make mortgage payments to your bank or home lender, while HOA fees are paid directly to the Association itself.
What about special assessments?
Sometimes, an HOA may need to collect special assessments. These are fees above and beyond the normal monthly or annual dues, and are generally collected when there is a major maintenance or repair need that the Association can’t cover from its operating budget or reserve fund. Special assessments are mandatory for HOA members.
As for tax deductions, special assessments follow the same rules as regular HOA fees: That is, you normally can’t deduct them, though there are exceptions for owners who serve as landlords or who run home-based businesses. With specific questions about whether you can declare HOA assessments on your tax return, we recommend talking directly with a tax professional.