It would be great if your homeowners' association fees were tax deductible, but the law doesn't work that way. HOA fees may feel like taxes and although the association can penalize you for not paying, 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.
When HOA Expenses Are Tax Deductible
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 Tax Deductible HOA Dues
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.
However, 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.
Schedule E HOA Fees
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 can 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 losses against non-rental income. Everything else, you can carry forward. You would claim these losses on Schedule E of your IRS Form 1040.
- IRS: Publication 530 (2018), Tax Information for Homeowners
- IRS: Publication 587 (2018), Business Use of Your Home
- IRS: Publication 527 (2018), Residential Rental Property
- LoopholeLewy.com: The Small Landlord Exception and the $25,000 Special Allowance
- IRS: About Schedule E (Form 1040), Supplemental Income and Loss