Tax seasons come and go, but one thing you can count on is that it’s something you’ll have to deal with each year. Understandably, you want to keep your bill as low as possible. Still, the tax system can be mind-bogglingly complex at times, particularly when figuring out all the legal deductions allow to you.
If you’re part of a homeowner’s association (HOA), you are very likely wondering how that could figure into your taxes.
For the most part, the answer is “no,” but you should be aware of exceptions.
Every homeowner’s association (HOA) is different, but it’s a good bet that you’re paying some fees or dues. These would be used to pay for shared services such as trash removal, snow clearance, landscaping, and general maintenance. They might also cover shared amenities like community pools, playgrounds, and parks. In addition, many HOAs will take a portion of your fee to put into a savings account to help fund larger projects such as repaving, sewer line upgrades, or community expansion.
While an individual property owner can claim some deductions for home maintenance or improvement, HOA fees are generally not included. That said, it is possible to deduct certain portions of an HOA fee in some specific cases.
For example, if your property is used solely for rental purposes, the IRS will allow you to deduct most of your HOA fees as a rental expense. However, if your property is your primary residence, you will not claim HOA fees. But if you rent your property for part of the year, you should be able to deduct a portion of those fees equal to the time the property was rented.
If part of your property is rented and the remaining portion is your primary residence, you should be able to deduct an amount of the HOA fees equal to the piece of the property being rented out.
Another valid exception is if you are self-employed and have a home office. In that case, you can deduct some of your expenses related to that home office — including HOA fees. The main caveat is that your office must be your primary place of business or, at least, where you meet clients or take care of administrative tasks.
Your home office has to be a distinct space used solely for business. An office taking up part of the garage or a corner of the basement would qualify, but simply using a laptop on the couch would not.
The amount you are allowed to deduct will be equal to the portion of your property used for a home office. If you claim 10% of your home is being used as your home office, you can deduct 10% of your property taxes, mortgage interest, repairs, and utilities. You can also deduct 10% of your HOA fees.
This deduction is only allowable for those who are self-employed. If you are working remotely for an employer, these deductions do not apply.
Warehousing items in your home can also lead to some HOA fee-related deductions. Still, there certain IRS qualifications you must meet, such as being in the retail or wholesale business and having no other place of business aside from your home.
If you’ve not done so already, review your HOA agreement to ensure you are not violating any regulations regarding home offices or running a retail or wholesale business from your home.
When claiming anything related to your HOA fee as a deduction, make sure to check with a local tax expert to be certain you are doing it appropriately and legally. Likewise, your HOA management team might also have some valuable insights. Both may even have suggestions for further deductions you might have missed.
Taxes serve a useful purpose in a community, but there’s no reason to pay more than your fair share.