Can You Write Off HOA Dues on Your Taxes?

Homeowners associations (HOAs) are common in many communities, including condominiums, townhouses, and some single-family neighborhoods. These organizations collect regular fees, known as HOA dues, from property owners to manage and maintain shared areas and amenities. These fees typically cover expenses like landscaping, common area utilities, security, and maintenance of shared facilities such as pools or clubhouses. The tax deductibility of these payments largely depends on how the property is used.

The General Rule for Personal Residences

HOA dues paid for a personal residence, such as a primary home or a vacation property, are generally not tax-deductible. The Internal Revenue Service (IRS) classifies these expenses as personal living expenses. This is similar to how utilities, homeowner’s insurance premiums, or the principal portion of mortgage payments for a personal residence are treated; they are considered costs associated with maintaining a place of living rather than expenses incurred to generate income. Homeowners cannot claim a deduction for HOA fees paid for residences not used for business or rental purposes.

Deductibility for Rental or Business Use

HOA dues are tax-deductible when the property is used to generate income, such as a rental property or for business purposes. When a property is rented, HOA fees are considered ordinary and necessary expenses of operating the rental business. These expenses are directly related to managing and maintaining the property, making them deductible against rental income. Landlords typically report these deductible expenses on Schedule E (Form 1040).

If an entire property is rented, 100% of the HOA fees can be deducted. For partially rented properties, such as a single room or a basement apartment, only a proportional amount of the HOA fees can be deducted, based on the percentage of the property used for rental purposes. Self-employed individuals who use a portion of their home exclusively and regularly for business as a home office may also deduct a percentage of their HOA fees. The deductible amount is calculated based on the home office’s square footage relative to the total home square footage, and this deduction is reported on Schedule C (Form 1040).

Special Assessments and Capital Improvements

Homeowners associations may levy special assessments in addition to regular dues to cover significant expenses. These assessments often fund major projects like a new roof, infrastructure repairs, or community improvements. The tax treatment of special assessments differs from regular HOA dues, based on the nature of the expense they cover.

Special assessments for capital improvements, which increase the property’s value or extend its useful life, are generally not immediately deductible. Instead, these costs are typically added to the property’s tax basis. Increasing the property’s basis can be beneficial when the property is sold, as it can reduce taxable capital gains. However, if a special assessment is for repairs or maintenance that preserve the property’s current condition, it may be deductible, particularly for rental properties. For personal residences, special assessments are not tax-deductible.

Record Keeping for Tax Purposes

Accurate record-keeping is essential for homeowners who intend to deduct HOA dues or track special assessments for tax purposes. Maintaining thorough records helps substantiate claims and ensures compliance with IRS regulations. Necessary documentation includes official HOA fee statements, payment receipts, and bank statements.

For rental properties, keep rental agreements and records indicating rental periods. If a home office deduction is claimed, documentation should show the exclusive and regular business use of the space, along with calculations for the deductible percentage of HOA fees. Records supporting income and expenses for rental activities should be kept for at least three years after the tax return due date or filing date, whichever is later. Keeping these records organized simplifies tax preparation and provides necessary support in the event of an IRS inquiry or audit.