If you have purchased a home or condo, you are likely paying a monthly fee to cover repairs and maintenance on the outside of your home or in common areas. You may be wondering whether this fee is tax deductible. The answer regarding whether or not your HOA fees are tax deductible varies depending on the situation. A few common circumstances are listed below.
Private Year-Round Home
If you are using your property as a private home, and you utilize it year-round as your main residence, then unfortunately the homeowners fee cannot be deducted on your taxes. This is because your HOA is considered a private entity. Even if some of the fees are directed towards common areas, the IRS views your full fee as non-deductible. Most homeowners fit in this category. However, although the fee itself is not tax deductible in this scenario, many other expenses relating to your home are tax deductible. These can include your mortgage interest and real estate taxes. Be sure to consult with a tax professional regarding which deductions you still qualify for as a homeowner.
Use of Your Home or Condo for a Business
If you are using your home or condo for a business, the rules regarding taxes may be different. In some cases, it is possible, particularly if you itemize, to deduct a portion of your HOA fees. Any percentage used in conjunction with this business or office may be tax-deductible.
Use of your Home or Condo as a Rental Property
In the case of the home or condo that you own being used as a rental property to house tenants, the rules immediately change. Because the IRS views the expense of an HOA fee to be a necessary cost of maintaining the property, any property that is used as a rental property is eligible for a tax deduction on the HOA fees. If you fit in this category, be sure to fill out a Schedule E form when completing your taxes each year.
Use of your Home as a Part-Time Home or Vacation Property
If your home or condo is in use for part of the year as a vacation home, or you are only using the home for part of the year and renting it out during the other months, the IRS will only consider the months during which your property is in use as a rental property as being eligible for a tax deduction of the HOA fees. If the home is rented out for six months out of every year, the fees paid during that time are considered tax deductible. However, the fees paid while you are living in the home are not tax deductible.
Taxes can be complicated when it comes to owning a home or condo that is a part of a homeowners association. As a general rule, fees are not tax-deductible. However, it is always helpful to speak with a tax professional about your individual circumstances to be sure that you are getting your full tax break.