HOA Fees Can Be Tax Deductible if You’re a Landlord or Freelance at Home
Is HOA tax deductible? Here are the situations where the IRS allows homeowners to deduct homeowners association fees from their tax returns.
If you own your home, you’re likely well-aware of HOA fees—perhaps more aware than you’d like to be, since these fees can cost a pretty penny! But you might be wondering whether (and maybe hoping that) HOA fees are tax deductible. For the uninitiated—all you renters out there—HOA fees, or homeowners association fees, are fees that the homeowners association of a development or a neighborhood charges to its homeowners.
HOA fees—which might be charged monthly or quarterly—pay for things like city services, insurance, maintenance, amenities, staff salaries, reserve funds, landscaping, and pest control. And as Quicken Loans notes, some people might find HOAs restricting, while others “might find it convenient to have some of the responsibilities (and headaches) of homeownership taken off their shoulders—all while still maintaining many of the benefits and freedoms of owning their own home.” Now for the bad news...
With a few exceptions, HOA fees aren’t tax deductible
As Experian explains on its blog, HOA fees typically aren’t expenses you can deduct from your taxes. “Just as homeowners who live outside an HOA can’t deduct the cost of their utility bills, maintenance or home repairs, your HOA fees generally aren’t tax-deductible expenses,” the credit bureau explains. And now the good news: there are some exceptions to this rule.
If you're self-employed, and you work from home, your HOA fees could qualify as a business expense
HOA fees could represent tax-deductible business expenses for self-employed taxpayers who work from home or who use their home to store inventory or product samples, Experian explains. The hitch is that you can only deduct an amount that is proportional to the percentage of your home that you use for business purposes. If you use 15 percent of your home as a home office, then you’d only be able to deduct 15 percent of your HOA fees.
The IRS’s Publication 587 explains the business use of a home for the preparation of 2021 tax returns. As that document notes, you’ll figure out your deduction either with your actual expenses or a simplified method, and you’ll note the deduction on Schedule C (Form 1040).
If you rent out the property, your HOA fees are a tax-deductible rental expense
HOA fees are tax deductible as a rental expense for homeowners who rent out the property in question, according to guidance from H&R Block. The tax-preparing company does note, however, that if you live in the property for part of the year, you can only deduct part of the HOA fees.
Also, bear in mind that if you're charged for a special assessment for an improvement, you might not be able to deduct that expense. According to Experian, landlords list rental expenses and income in Schedule E, Part 1. As always, read the IRS documentation or talk with a tax professional if you have other questions about your tax situation.