Saving taxes by writing off HOA dues is a great way to minimize your payables. This, however, is only sometimes allowed unless under exceptional circumstances.
How to Write off HOA Dues from Your Taxes
Everybody pays them! Well, almost everybody taxes. In this article, we’ll be looking at how to write off HOA dues from your taxes.
Although HOA dues might be smaller in specific locations, the payments do add up at the end of the year. Under exceptional circumstances, however, you can write off your association fees to help minimize your total tax bill.
Is it possible to write off HOA Dues from your taxes?
Homeowners at least once ask themselves, “are HOA dues tax-deductible?” This is a viable question, especially if they live in places with costly fees. Since some homeowners associations are mandatory, the best thing homeowners can do is to use these fees as deductibles.
If you’re part of an HOA and are considering using your HOA fees as tax deductibles, here’s a thorough explanation of what you can or cannot do when writing off HOA fees.
Before assuming that HOA fees are tax deductibles, learn under what measures they can be deducted.
Under What Circumstances are HOA Fees Tax Deductible?
HOA fees are tax-deductible only under a few specific circumstances. If the homeowner meets these circumstances, they can write off their HOA fees in their tax bill.
If you live in the home
Is a community association’s fees tax-deductible if you are renting? The answer is no.
If you actually live in your home, and are using your property as a private home all year round — then, unfortunately, the homeowner’s fee is not a tax-deductible.
The reason is your HOA is considered a private entity. While some fees are directed towards common areas, the IRS views your entire HOA or Community Association fee as non-deductible.
Most homeowners fall in this bucket. Although the fee itself is not tax-deductible in this scenario, many other expenses relating to your home are. These can include your mortgage interest and real estate taxes. To be sure, you should consult with a tax professional about which deductions you qualify for as a homeowner.
If you are working from home
If you are working from home or have a business office located at home, as long as it takes up 15% of the home, you can deduct 15% off your total tax bill. Suppose you’re also wondering, “are condo association fees tax-deductible,” as long as you use 15% or more of the total space? In that case, you can use this as a deductible.
If you own a rental property
Suppose you are using your property as an investment, not a primary residence. You can write off the homeowners’ association fees as tax deductibles in that case.
Should you however only rent out the property for a part of the year, then you will only be able to deduct the HOA fees in proportion to the time you do and don’t live there.
How to Deduct HOA Fees
If you fall under the categories above, you can read more about it in the IRS Publication 587 to ensure that your actions are correct. After doing your research, you can then list these HOA fees under Schedule C.
Landlords will have to list their rental income and expenses (including HOA fees) under Part 1 of their Schedule E but it’s important to consult an accountant to find out how much tax can be reduced.
Suppose you need to determine whether you can reduce your taxes by factoring in your HOA fees. In that case, you can consult a tax attorney or accountant for personalized advice.
What happens when your HOA fees aren’t tax deductible
Homeowners not falling under the above categories can use HOA fees to minimize taxes. The tax deduction comes from reduced capital gains taxes if you decide to sell the property.
Making a record of how much you’ve paid in HOA fees is essential, even if they might not be deductible today. For homeowners that can keep an accurate description of how much they’ve paid in their association fees, these fees can be used later when they decide to sell.
If you sell your property, you are entitled to pay capital gains taxes once the sale has happened. Depending on the taxpayer’s tax bracket, these capital gains taxes can range from 0%, 15%, to 20%.
When paying your capital gains tax upon the sale of the property, you can factor in homeowner association fees to reduce your total payable.