Rules May Differ Across States
The IRS is the federal body that manages tax payments and all states in the United States work in line with IRS laws.
However, tax systems vary based on state laws. Your state might have special requirements that dont apply in other states, so its best to apprise yourself of what is applicable in your area before you proceed.
I have written a guide on HOA fee tax deductions in California.
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.
How Hoa Fees Work
There are two types of HOA fees: dues and fines. When you buy a home in an HOA, you are also buying some stake in the neighborhood. All the homeowners also own the park, pool, clubhouse, etc and pay an ideally modest amount each year to upkeep nice neighborhood features. These costs are covered in regular dues, special assessments, and sometimes, the income from code violation fines.
|Monthly and/or Annual HOA Dues
|Monthly or annual HOA dues are a lot like property taxes but on a smaller scale. You pay a percentage of the annual upkeep along with other homeowners to keep the tennis courts and the pool in good condition year on year. Your regular dues can be tax-deductible under the right circumstances. Special assessments are less likely to be tax-deductible due to their purpose-exclusive nature.
|HOA Citation Fines
|Some HOAs bring in their income with citation fines. These are fees charged to homeowners for violating the CC& Rs and Bylaws of the neighborhood put together to build a community and protect property values. Common examples are no outrageous exterior paint, yard flamingos, and taking your trashcans up the drive on trash day. However, some HOAs get overzealous with rule-making and rule-enforcing. You might get a citation fine for a fence an inch too short or grass an inch too tall. HOAs can fine for a barking dog, a new deck, or just a tree swing. Some have been known to go after backyard clotheslines and interior renovations in addition to exterior rulings.
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What Goes Into Hoa Dues
Different HOAs have different services. Some provide landscaping, pool maintenance and maintenance of the exterior of buildings. Others, especially in condominium projects, may provide some utility services like garbage, water or even cable television. HOAs frequently also take responsibility for the commonly owned parts of a development, such as the hallways and common areas of a condo building or the land and public amenities surrounding the individual townhomes in a townhome development.
Using Your Home For A Business
If you are using your home or condo for a business, the rules regarding taxes are slightly different. While you cannot deduct the entire amount of the HOA fee from your taxes, its possible to deduct a portion of it any percentage used in conjunction with the business may be tax-deductible.
This rule also applies if you only have a small office in your home: if you use 10% of your home as an office, the same percentage of HOA fees is deductible. The same goes for mortgage interest, property taxes, and even utilities.
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How Do I Deduct Hoa Fees
Assuming you qualify for the deduction, you must report the HOA fees on your Schedule E . This is the form you use to report your income or loss from different classes, such as partnerships, royalties, estates, S corporations, and trusts.
It also applies to rental real estate. You should do this when you submit your HOA tax return.
According to the IRS, you can deduct up to $25,000 if you are actively engaged in managing your rental property. Should you suffer a loss for the year, though, you can carry over the excess to the following year. For example, if you recorded a loss of $35,000, you can deduct $25,000 the current year and deduct the remaining $10,000 the next year.
Home Office For A Trade Of Business
If you own your home and have an office where you conduct business in that property, you can deduct a portion of your HOA fees. The IRS determines the amount of the HOA fees you can claim for a home office based on the percentage of space the office takes up in your home.
For example, if you say that your office takes up 20% of the space in your home, you can claim 20% of the HOA fees paid. Youll need to identify where the office space is clearly, so if youre working from your laptop on your bed or sitting at the kitchen table, this wont count as office space.
You should note that there are two ways that the Internal Revenue Service determines eligible home office expenses.
Self-employed: If you are self-employed and have a home office used for business 100% of the time, you can claim the percentage of your HOA fees that corresponds with the size of your home office as a home office expense.
Remote office: If you are using your home office as a remote office for your job, it needs to pass the convenience of the employer test. You have to prove that the office in your home is for the convenience of your employer. You cannot receive compensation from the employer for the use of the home office. What that means is that theyre not paying you to rent for the space.
You will need to check with a tax expert to make sure you meet IRS qualifications regarding whether youre in a retail or wholesale business, and there are no other business locations aside from your home.
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Are Home Taxes Deductible
Homeowners who itemize their tax returns can deduct property taxes they pay on their main residence and any other real estate they own. This includes property taxes you pay starting from the date you purchase the property. The official sale date is typically listed on the settlement statement you get at closing.
Are Hoa Fees Deductible For A Home Office
Yes, HOA fees are deductible for home offices. Before claiming your HOA fees, you will have to determine how much space your home office takes up in your house. Once you figure out the percentage, youll use that number to deduct your HOA fees.
Youll want to take pictures of your workspace you want to prepare yourself in case the IRS requests to see proof that you do have an office set up in your home.
Remember, you need to have a specific area designated as your workspace. Your bed, the couch, or your kitchen table wont suffice as an office space.
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Use Of Your Home As A Part
Some property owners only use their houses as a vacation home. This means they do not occupy it for most of the year, instead choosing to rent out the property for the remaining unused months.
This type of setup is a special case when it comes to HOA tax deductibles.
If you are part of this category, 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, but the fees paid while you are living in the home are not tax-deductible.
Other Property Fees That Are Tax Deductible
As I have mentioned, even though you cannot deduct your HOA fees, there are still other property-related deductions available to you.
The laws guiding federal tax deductions have changed repeatedly in recent years. For now, deductible property fees include:
- Mortgage insurance premiums / Private Mortgage Insurance .
- Home mortgage interests.
- State and local real estate taxes.
Anyone taking standard tax deductions isnt eligible for PMI deductions. To be eligible for PMI deductions, youd have to follow the necessary requirements and also employ an itemized deduction system on your return.
Another factor that can affect your eligibility for deductions on MIPs is your Adjusted Gross Income . For married couples filing separately, the AGI limit is $54,500. However, for an individual filing, you can only be eligible if your AGI is less than $109,000 annually.
Home mortgage interests are a popular deductible property fee. The deduction can either be taken as a standard or an itemized deduction. Youd have to decide on what method saves you the most money.
The IRS allows for deductions on the first $750,000 of home mortgage interest for debts incurred after December 16, 2017. For debts incurred before December 16, 2017, the limit is $1,000,000 .
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Are Hoa Fees Tax Deductible En Lnea
Deductions are available for improvement works carried out in the residential building and which have the purpose of improving energy efficiency, hygiene, health and environmental protection, the use of renewable energies, safety and watertightness, and in particular the replacement of electricity, water, gas and other supply installations, or favoring accessibility to the building or the dwellings, as well as for the installation of telecommunication infrastructures.
The VAT Law considers that the leasing of common elements is a business activity and therefore the community must pay this tax. Thus, for the rental of rooftops for mobile telephone antennas or facades for the placement of advertising tarpaulins or even of premises, the community of owners pays the amounts with VAT, which must then be settled quarterly.
However, there is the exception of the VAT exempted rentals that are those referring to the housings property of the community, for example the house-porters shop that is rented to a family to live. In these cases there is no obligation to liquidate VAT since it is not charged.
The Home Is A Rental Property Seasonally
If you have a property that you use for parts of the year as your primary residence, and the rest of the year you rent it out, you can claim a portion of the HOA fees when you file your taxes.
How much of the HOA fees you can claim will be determined based on the amount of time you used the property as a rental unit.
Fees paid while you were using the home for personal use will be exempt from being used for tax deductions.
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Are Hoa Fees Tax Deductible For Rental Property
Yes, you can deduct your HOA fees from your taxes if you use your home as a rental property. The IRS considers HOA fees as a rental expense, which means you can write them off from your taxes. Therefore, if you use the home exclusively as a rental property, you can deduct 100 percent of your HOA fees.
Rental property tax deductions also apply if you rent out only a portion of your house, such as a basement apartment or garage. In that case, you can deduct a portion of your HOA fees equal to the percentage of your house that you use as a rental space.
The concept persists if you use the property as a rental part-time. For example, if you reside in the property 50 percent of the time and use it as a rental for the other 50 percent, you can deduct 50 percent of expenses, including HOA fees.
What about condo fees? Is condo fees tax deductible on a rental property? Yes, if you rent out the condo unit, you can also deduct condo fees from your taxes. It works in a similar fashion as HOA fees.
Which Home Expenses Are Tax Deductible For 2017
The Tax Cut and Jobs Act was signed into law by President Trump on December 22, 2017, so prior tax law applies for 2017. If your state and local taxes were greater than $10,000, you can still deduct them. The IRS permits prepayment and deductibility of property taxes for 2018 if they were assessed in 2017. You cant prepay 2018 property taxes and deduct them if they were not assessed until 2018. You cannot prepay guesstimated 2018 property taxes in 2017. For 2017, you can still deduct interest on home equity loans used for any purpose, not just building, buying or substantially improving a home. You can also deduct mortgage interest on up to a $1 million loan and up to $1.1 million if that additional $100,000 includes a home equity loan. All deductions require itemizing.
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What Do Hoa Fees Cover
Every HOA community is different. When house hunting, its vital that you request a copy of the HOAs rules and regulations, known as the Covenants, Conditions and Restrictions , from the seller. This is so you dont end up joining an association that is more restrictive than you want and so you know what kinds of services to expect your monthly dues to cover.
Some of the costs that can be paid for by members monthly HOA fee payments include:
- City services: Civic amenities such as trash removal, water and sewage are often included in HOA fees, meaning youll have fewer monthly bills to keep track of.
- Insurance: This only includes insurance for damage to areas within the purview of the HOA, such as common spaces or the outside of the building if you live in a condo. Youll still need an individual insurance policy to cover everything youre responsible for, including the inside of your condo or the inside and outside of your own townhouse or detached home.
- Lawn care: What this includes will depend on where you live. If you live in a detached home or townhouse, youll most likely be responsible for your own lawn care . Common areas that require lawn care and gardening will be taken care of by the HOA. Snow removal for shared roads and parking lots may also be included as part of your fees.
Is Hoa Tax Deductible Answered
Are HOA fees tax deductible? It depends. Generally, you cannot deduct HOA fees from your taxes, though this comes with a few exceptions, as discussed above. It is always best to seek help from a tax professional like CSM when preparing your taxes, though. This way, you can avoid issues with the IRS.
Self-managed communities and HOA management companies can benefit from the HOA management solutions Clark Simson Miller provides, including accounting and financial management. Our software makes it easy to stay on top of your financials, which, in turn, makes tax season a breeze. Call us today at 865.315.7505 or contact us online for a free demo.
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What Hoa Costs Are Tax Deductible
November 17, 2020 | Accounting
If you have purchased a home or condo, you are likely paying a monthly fee to your association. Typically, these HOA fees are used to cover repairs and maintenance on the outside of your home or in common areas, or for emergency repairs that may come up throughout the year. While many homeowners wish they could lower their taxable income with HOA fees, there are actually only a few scenarios where HOA fees can be deducted from your taxes. Here are a few different situations to consider.
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Changes In Hoa Tax Deductions
Prior to 2018 and the Tax Cuts and Jobs Act, you could write off a share of all of your home’s expenses that corresponds to your home office’s share of your home’s total area. In other words, if your home office took up 15 percent of your house, you could write off 15 percent of everything you spent on your home, including utility bills, repairs, and services. This included writing off an equal proportional share of your entire HOA payment, regardless of what the HOA spends the dues on. So, if your HOA dues are $4,000 per year, and you use 15 percent of your home as your permanent place of business, you could deduct 15 percent of $4,000, or $600.
However, the new law only allows this tax deduction if you are self-employed. Employees working remotely for an employer will get no home office deduction. This is being off-set by the doubling of the standard deduction on your tax return.