A common query strikes most individuals – are HOA fees tax deductible? Usually, A home owners association (HOA) fees are not deductible on your federal tax return. Yet, there may be exceptions, if you rent the home or retains a home office. Moreover, an HOA capital improvement assessment could amplify the cost basis of your home, which could have several tax consequences.
In this article, you will discover are Association fees tax deductible and its different circumstances to claim to HOA fees on your taxes.
When Can I Claim HOA Fees on My Taxes?
HOA fees are usually are not deductible as a personal expense and added to your monthly housing payments. you can simply nullify the expense if you run a business or own an investment property.
Work from Home
If you are a self-employed and do work from home or use part of your home to store inventory or product samples, your HOA fees come under as a business expense. You can deduct this amount, based on proportional to how much area of your home is used for your business. For example, if your home office takes up 15% of your home, you may be able to deduct 15% of your HOA fees.
Rent the Property
When you retain and rent out a property, the associated HOA fees may be deductible as a rental expense. If you rent the property for a year, all your HOA fees may be depreciated. But if you only rent it for a part of the year—whether it is a vacation home that you use for business—then only a fractional amount of HOA fees may be deductible.
HOA Capital Improvement Assessments
HOA capital improvement assessments are not considered tax-deductible, but they are essential to mention as the improvement could enhance the cost basis of your home. As a result, you may pay reduced amount in capital gains taxes when you will sell the home. Although , you may have to pay more property taxes.
How to Deduct HOA Fees?
If you are assuming to deduct HOA fees, it completely depends on your circumstances.
The home office deduction can be complex to grasp and calculate. You may want to analyse the requirements that ensure your qualification. IRS Publication 587 can assist you in determining whether the general or simplified method will save you more amount. Then, you can list the home office expense (HOA) on your Schedule C.
For land owners, you can list your rental income and expenses in Part 1 of your Schedule E. If you only rented the home part of the year, it will be tough to determine the deductible amount.
In this case, you can personally ask an accountant or a professional tax attorney for suitable advice and suggestions to limit how much you owe going forward.
For more information regarding HOA fees, visit the Accounting Byte portal.