A Tax Break for HOA Fees

It would be great to write off your homeowners' association fees on your taxes, but the law doesn't work that way. HOA fees may feel like taxes, and the association can penalize you for not paying, but they're imposed by a private entity. The IRS says that they're not deductible the way property taxes are. There are a few exceptions, though.

Home Office

If you use part of your home as an office, you can deduct part of your home expenses, including the fees. With an office that takes up 10 percent of the house you can write off 10 percent of utilities, mortgage interest, property taxes and HOA dues as business expenses. Your office has to be the primary place of business, or where you handle all the administrative tasks or meet clients. It has to be a space used solely for business, although it need not be an entire room. For example, a corner of a bedroom set up as an office would qualify, but a lap desk on the couch in your living room would not.

Other Uses

If you rent out part of your house -- a garage or basement apartment, for instance -- you can deduct a share of the HOA fees just as you do with business expenses. You can also deduct space you use as a day-care center or for storing inventory for your business. You have to meet the IRS qualifications for the tax break. If you're storing inventory, for instance, you must be in wholesale or retail sales and you must have no other place of business besides your home.

Rental House

If the HOA fees are for a separate rental property, you're in luck. Expenses on a rental house -- depreciation, repairs, property taxes, mortgage interest and HOA fees -- are 100 percent deductible against your rental income. If you use the house part of the time, you have to divide up HOA fees and other expenses. Suppose that 90 percent of the time the house is occupied by tenants and 10 percent of the time by your family. In that case, you can deduct 90 percent of expenses.

Claiming

You take any deductions related to your home business against your self-employment income. If the business use of your home pushes you into the red, you can't take a loss against other income. Instead, you carry the loss forward and try deducting it next year or the year after. With a rental, if you're active in managing the property, you can write off up to $25,000 in red ink against non-rental income. Everything else you carry forward.

About the Author

A graduate of Oberlin College, Fraser Sherman began writing in 1981. Since then he's researched and written newspaper and magazine stories on city government, court cases, business, real estate and finance, the uses of new technologies and film history. Sherman has worked for more than a decade as a newspaper reporter, and his magazine articles have been published in "Newsweek," "Air & Space," "Backpacker" and "Boys' Life." Sherman is also the author of three film reference books, with a fourth currently under way.

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