Can I Deduct HOA Fees? Rules for Homeowners & Landlords

Homeowners Association (HOA) fees are regular payments made to a community association. These fees fund the maintenance of common areas, amenities, and the overall management of a shared living environment. While they are a common expense for many property owners, HOA fees are generally not tax-deductible for most homeowners. This principle primarily applies when the property serves as a personal residence.

HOA Fees for Personal Residences

For a primary residence or a personal vacation home, HOA fees are not deductible. The Internal Revenue Service (IRS) considers these payments to be personal living expenses. This categorization is similar to how rent payments or the principal portion of mortgage payments are treated; they are not eligible for deduction.

Even if a portion of the HOA fees contribute to expenses that would otherwise be deductible, such as property taxes on common areas, these components are not separable for individual deduction. The IRS views the entire HOA fee as an inseparable cost associated with personal occupancy. Therefore, homeowners cannot deduct these fees.

Deducting HOA Fees for Rental Properties

An exception to the rule applies when a property is used as a rental. If a property generates rental income, the HOA fees paid for that property are deductible as an ordinary and necessary operating expense. These fees are considered a cost of doing business, similar to property management fees, insurance premiums, or repair expenses associated with the rental activity.

To claim this deduction, rental property owners report these expenses on Schedule E (Form 1040), Supplemental Income and Loss. The IRS considers rental activities as business purposes, allowing for the deduction of these expenses to reduce taxable rental income. If a property is rented for only a portion of the year and used personally for the remainder, only the percentage of HOA fees corresponding to the rental period is deductible.

Deducting HOA Fees for Business Purposes

In limited circumstances, a portion of HOA fees are deductible for a property used for business. This applies when a homeowner qualifies for a home office deduction. To qualify for a home office deduction, a portion of the home must be used exclusively and regularly for business, serving as the principal place of business or a place to meet clients.

Only a proportionate share of the HOA fees, based on the percentage of the home used for business, is deductible. For instance, if 15% of the home is used as a qualifying office, then 15% of the HOA fees are deductible. This deduction is calculated on Form 8829 and then reported on Schedule C. Employees working remotely from home for an employer are not eligible for this deduction.

Special Assessments and Deductibility

Special assessments are one-time or time-limited charges levied by an HOA for specific projects. These projects include capital improvements or unexpected, large repairs that exceed the regular budget. For personal residences, special assessments are not tax-deductible, as they are considered personal expenses.

For rental properties, the deductibility of special assessments depends on their purpose. If the assessment is for repairs and maintenance that restore the property to its original condition, such as fixing a damaged roof or repainting common areas, the expense is deductible in the year it is paid. However, if the special assessment is for a capital improvement that adds value to the property or extends its useful life, such as building a new clubhouse or installing an elevator, it is not immediately deductible. Instead, these costs must be capitalized, meaning they are added to the property’s basis, and then depreciated over the useful life of the improvement, often 27.5 years for residential rental property.