Are HOA Fees Tax Deductible in Florida?
The deductibility of HOA fees on your federal tax return depends on how you use your property, distinguishing between personal and business expenses.
The tax treatment of Homeowner association (HOA) fees is determined by federal law, as Florida does not have a state income tax. For most people using their property as a primary residence, HOA fees are not deductible on a federal tax return. The Internal Revenue Service (IRS) views these payments as personal living expenses. However, situations such as using the property for rental or business purposes can allow for a deduction.
The General Rule for Primary Residences
For individuals who own and live in their home, the IRS does not permit a deduction for HOA fees. These payments are classified with other non-deductible costs of maintaining a personal home, like utility services or minor repairs. Dues fund the upkeep of common areas such as community pools, clubhouses, and landscaping, and might also cover trash removal or security services. The IRS views these as communal versions of personal maintenance; just as you cannot deduct the cost of mowing your own lawn, you cannot deduct your share of landscaping the community’s grounds.
Deducting HOA Fees for Rental Properties
The tax rules for HOA fees change when the property is used to generate income. If you own a property and rent it out to tenants, it is treated as a business, and its related expenses can be deducted. The IRS allows landlords to deduct all “ordinary and necessary” expenses, which includes HOA fees.
For a property that is 100% a rental for the entire year, you can deduct 100% of the annual HOA fees. This deduction is reported on Schedule E (Supplemental Income and Loss), which reduces your taxable rental income.
A different calculation is needed for mixed-use properties, such as a vacation home that you rent out for part of the year. In this scenario, the HOA fees must be prorated. You can only deduct the portion of the fees that corresponds to the period the property was rented, based on the rental usage percentage for the year.
The Home Office Deduction Exception
Another instance where HOA fees may be partially deductible is through the home office deduction. This applies to self-employed individuals who use a portion of their home exclusively and regularly for business. If you meet the IRS requirements for a home office, you can deduct a percentage of your household expenses, including a portion of your HOA fees.
The deduction is calculated based on the percentage of your home used for business. For instance, if your home office occupies 10% of your home’s square footage, you can deduct 10% of your annual HOA fees. This deduction is claimed on Form 8829, Expenses for Business Use of Your Home.
This deduction is available only to self-employed individuals. The Tax Cuts and Jobs Act of 2017 suspended the deduction for W-2 employees through 2025, even if an employer requires them to work from home.
Tax Treatment of Special Assessments
An HOA may levy a special assessment on homeowners, which is a one-time fee for a significant expense that the association’s reserve funds cannot cover. The tax treatment of these assessments depends on their purpose. If the assessment is for a major capital improvement, such as replacing the community’s roofing, the payment is not deductible.
Instead, this payment is added to your property’s cost basis. The cost basis is the original purchase price of your property plus certain settlement fees and the cost of capital improvements. Increasing your cost basis can reduce the capital gains tax you owe when you sell the property.
If a special assessment is for maintenance or repairs, it is treated like regular HOA fees. For a rental property owner, this type of assessment would be a deductible expense, while for a primary residence, it would be a non-deductible personal expense.