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Are HOA Fees Tax Deductible?
HOA or Home Owner's Association are a part of some communities. The development and preservation of a community can be in part controlled by its HOA. When you purchase an investment property, the home could be part of a Home Owner's Association. Regardless if you agree with the dues payments, renting a property in a nice neighborhood is what can grow your income. As a savvy real estate investor, you are probably wondering are HOA fees tax deductible.
These fees are treated differently by the IRS and are closely scrutinized.
What are HOA Fees
Many neighborhoods are acting on their own behalf. This includes putting out guidelines for all members of the community to follow. A homeowner's group elects a president, vice president, secretary and usually a treasurer. This tiny organization operates similar to a corporation. The policing activity is loved by some and hated by others. The monthly, quarterly or annual dues to be a community member are charged to the homeowner and the tenant. Your tenant agreement as a landlord could specify how these dues are handled.
The fees are used to help support the neighborhood. It does cost money to perform landscaping work, sidewalk maintenance and general neighborhood improvements. Members of the HOA are at an advantage. The group power of an HOA helps keeps the pricing manageable. As a landlord of a rental property, you could have one or more properties in the same neighborhood. The fees that are assessed are separate for each property address.
Tax Deductions for HOA Fees
Many new to investment ownership can be surprised to know that HOA fees are generally not deductible. The fees are actually considered an expense by the IRS. This means that the price of Homeowner's Association membership is just like paying for automotive insurance or a satellite bill. Publication 529 explains in more detail about how the fees are treated for taxation purposes. These fees are not to be confused with property taxes that are actually deductible.
The portion of fees that are reported to you as a property owner or to your tenant must be paid. Some people find out the hard way when they go to sell an investment property. Back HOA fees can be assessed as a lien on the property. This can complicate a sale of the property. Paying for the HOA fees can be a blessing or a curse depending on the business skills of an investor.
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