Can HOA Fees Be Used as a Tax Deduction for a Second Home?
Taxes on a second home are deductible, but homeowner association fees aren't a tax. The association that imposes fees and assessments is a private agency, and the costs are just one of the many homeowner expenses you can't write off. If you use your second home as a rental part of the time, part of the fees are deductible.
Pretty much everything you spend on a rental house is deductible. Mortgage interest and property taxes are write-offs on a personal home, but only if you itemize; with a rental, they're a business deduction. You can deduct repairs, landscaping and maintenance, which aren't write-offs on personal property. You can also deduct homeowner association fees, advertising for tenants, and management fees to pay someone else to handle the property for you.
Partial Rental Use
If you have a second home and rent it out for part of the year, you only deduct part of the expenses. Suppose you have tenants nine months of the year and use it yourself from June through August. Three quarters of the year's expenses are deductible rental costs, the other 25 percent are not. Any time you let someone use it free or at a cut-rate rent, that counts as personal, not rental use, and the expenses aren't deductible.
If you rent out your second home less than 15 days a year, the IRS doesn't count it as a rental at all. You don't have to report any rent checks on your taxes, but you can't write off any rental expenses. If it's rented 15 days or more, you divide the number of days it was rented by the number of rental and personal days combined. With, say, 250 days divided by 300 rental-plus-personal days, you can deduct 83 percent of your expenses.
If you're a full-time real-estate pro, as defined by the IRS in Publication 527, you report rental income on Schedule C, for self-employment. Otherwise, you use Schedule E, and report your net rental income on Form 1040. If you operate the property at a loss and you manage the rental yourself, you can deduct up to $25,000 in losses from your other income, carrying the rest over to next year. If you hire someone to handle the property, you carry over all your losses.
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.