Are HOA Fees Tax Deductible?

HOA Fee Deductions Explained By a Residential Real Estate Finance Company

If you’re a real estate investor in Nashville, Brentwood, Franklin, or anywhere for that matter, you’re probably always looking for ways to save money and offset your expenses. One question that comes up often among investors is whether or not homeowners association (HOA) fees are tax deductible. The answer isn’t quite as straightforward as you might think. To answer all your questions, our residential real estate finance company has created an explanation of when HOA fees are deductible from your taxes.

What Are HOA Fees?

A homeowners association is a group that represents the shared interests of a community of homeowners. HOAs are often found in planned communities, such as gated neighborhoods or condo complexes. One of the key functions of an HOA is to collect monthly or annual fees from homeowners. These fees are used to cover the costs of shared amenities, such as swimming pools, tennis courts, and clubhouses.

What are HOA fees

HOAs may also be responsible for maintaining common areas by providing landscaping and enforcing community rules that govern things like home repairs and exterior paint colors. By putting their fees to good use, HOAs help keep property values high and neighborhoods clean and well-maintained.

Are HOA Fees Tax Deductible?

The answer to this question depends on your circumstances. According to H&R Block, if the HOA fees in question are for the HOA of your primary residence, you cannot deduct them from your taxes. In other words, if you’re a resident of the HOA community and live in the house, your HOA fees are not tax deductible.

However, if you own a home in an HOA community and use it as a rental property, the IRS does allow you to write off the HOA fees on that house as a business expense. So as long as you don’t live in the house and just use it as a rental property, those HOA fees are a business expense and may be deducted from your taxes.

What Primary Residence Expenses Are Tax Deductible?

If you’re a resident of an HOA community, you may be wondering if there are other expenses you can deduct from your taxes besides HOA fees. According to Business Insider, when it comes to your primary residence, there are a few residential expenses you are able to deduct from your taxable income: 

  • Mortgage interest
  • Home equity loan interest
  • Discount points (paid during the closing on your home)
  • Property taxes
  • Mortgage insurance
  • Certain home improvements
  • Certain home office costs

What Residential Real Estate Investment Expenses Are Tax Deductible?

Fortunately, when looking at your residential real estate investment properties, you’ll find there are many more expenses you can deduct from your taxable income than just HOA fees. This is because those homes are used for business purposes rather than your own dwelling.

According to the IRS, as a rental homeowner, you are usually able to deduct operating costs, depreciation, and repairs, as well as mortgage interest and property tax. What counts as an operating cost or repair? Anything that is an ordinary and necessary expense for managing your rental property, which typically includes hiring a property management company to help take care of it.

To get a clearer idea of what deductions you can make, discuss your expenses with a real estate tax CPA to make sure you’re getting the most out of your investments.

A Little More About HOA Fees

If you’re a resident of an HOA and feeling bummed about not being able to write off the HOA fees for your home, we understand. Fees are never a fun thing to deal with. However, there are many benefits to HOA fees that might make you feel better about paying them.

Benefits of HOA Fees

HOA Fees Maintain Communal Areas

Do you have a pool in your condo community? Or beautiful landscaping around the entrance for your neighborhood? You don’t have to vacuum that pool or monitor the chlorine level, nor do you have to deal with trimming the hedges or replacing dead flowers around the sign.

Those are amenities you get to benefit from, as are communal playgrounds, ponds, gardens, picnic areas, running tracks, and gyms. Your HOA fees go to cover the maintenance of those amenities, so you get to enjoy them without having to deal with any of the upkeep yourself.

HOA Fees Ensure Your Neighbors’ Houses Look Decent

Have you ever lived next to an eyesore of a property? Usually, the owner is hell-bent on keeping it that way, and there’s no reasoning with them. Instead, you’re stuck with their property right next door or across the street where you have to look at it every day. Not only can this be annoying, it can also bring down your property value.

Fortunately, living in an HOA community will relieve you of this problem. In order to live in the community, your neighbors will have to abide by all the same rules as you, which will likely require them to keep their home’s exterior and landscaping looking nice, among other things. 

Additionally, when a neighbor doesn’t abide by the rules, it’s the HOA’s job to confront them about it. So the HOA fees not only serve as a deterrent for people who might neglect their home’s appearance, but it also covers the legal expenses that may arise when it comes to dealing with a non-compliant individual.

HOA Fees Increase Your Property Value

Having an HOA means your neighborhood is held to a higher standard, which increases the property value of your home when it comes time to sell. Tidy lawns, neutral paint colors, and neat roofs and driveways are all factors that add to your home’s property value. Well-maintained amenities like those mentioned above are also a big draw for many homebuyers.

So even though HOA fees may be a pain, there are enough benefits associated with them that they are usually well worth the cost.

Want Financial Management Help From a Residential Real Estate Finance Company?

Tax deductions are an important part of any real estate investment, whether you’re based in Nashville, Brentwood, Franklin, or anywhere else. By understanding which expenses are tax deductible, you can keep more of your hard-earned money in your pocket. Contact us today for help maximizing the tax benefits of your real estate investments. At our residential real estate finance company, we have the experience and expertise to make sure you get the most out of every deduction available to you.

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