Are HOA fees a Sch A deduction?

[AZ-Tax]

New client and upon and looking at their 2012 Sch A, line 8 had HOA fees.

[ATSMAN]

HOA fees, Condo fees etc. are not deductible for personal residence on Sch A. I too had a client whose previous tax preparer was deducting the HOA fees along with real estate taxes on Sch A. When I showed him that it is not deductible he almost fired me until his intelligent wife saw the daylight!

The problem starts with some banks reporting the taxes and fees paid in their annual summary of of the mortgage account and tax preparers pick the figures from that statement.

I like to see the actual 1098 and property tax paid bills.

[Roberts]

HOA fees? mind boggling that someone would deduct that on personal residence.

[FEDUKE404]

Little surprises me anymore

HOA fees? mind boggling that someone would deduct that on personal residence.

It's in the same category as "tax professionals" who deduct pre-tax medical insurance premiums or employee commuting travel or various fees disguised as taxes. Not too far from those $100 each trash bags of clothing given to Goodwill.

Aside from dealing with related "Well, I've done it that way for years and never had a problem!" comments (sometimes even followed with "Are you SURE you know what you are doing?!?" additional), as ATSMAN has noted such revelations can create a very bumpy ride for calming a new client.

FE

[JohnH]

Probably some confusion arises because HOA dues are deductible as a rental property expense.

I've seen discussions claiming that the pro-rata portion of HOA dues allocable to local property taxes assessed on common areas and paid by the HOA can be deducted as an itemized deduction. I've also seen claims that this can only be done it it's a separately stated part of the HOA due statement, while others claimed it can be calculated and deducted even if not separately stated. But I've never handled a situation like this or researched it fully.

Anyone have any insight into that?

[Burke]

I've seen discussions claiming that the pro-rata portion of HOA dues allocable to local property taxes assessed on common areas and paid by the HOA can be deducted as an itemized deduction. I've also seen claims that this can only be done it it's a separately stated part of the HOA due statement, while others claimed it can be calculated and deducted even if not separately stated. But I've never handled a situation like this or researched it fully.

Anyone have any insight into that?

Well, that is an interesting question. In the one townhome complex I am involved with, the homeowner is billed directly by the County for the real estate tax on his unit and lot, which he owns. The HOA association pays for the common areas, which he does not own. The HOA owns that land and they should be deducting the real estate taxes paid on their tax return Form 1120-H which they file. So I can't see a case for the homeowner to take a pro-rated portion.

[Zee]

Good Answers

It appears HOA fees are deductible in rental situations, this would suggest an allocation might be appropriate if a portion of a residence is used as a rental (ie, duplex) or used for business (ie office in the home, in-home daycare). This also brings up the question of basis and assessments. If an assessment is for a capital asset owned by the taxpayer, it would appear the amount should be added to the basis of the property (such as a a roof). In my association, the roofs were replaced several years ago with an assessment of $20,000 (they weren't reserving adequately and still aren't). However, most assessments are for repairs or the capital improvements are for common property. I also own a couple of timeshares. One of them isolates RE taxes and allocates them to owner's on the annual maintenance bill based on square footage. I deduct the small amount.

[ATSMAN]

Taxes and assessments on common areas should be deducted by the HOA on its 1120H. I prepare one 1120H for a friend and we have been doing like that for years. The individual unit owners are billed directly by the county for their portion of the RE taxes. I have not seen an HOA set up as a partnership or pass through entity. Not sure if IRS even allows that.

Condo fees, HOA dues can be deducted by the landlord on Sch E for rental units.

[Burke]

I also own a couple of timeshares. One of them isolates RE taxes and allocates them to owner's on the annual maintenance bill based on square footage. I deduct the small amount.

I don't see a problem with that if they are passed through to the owners. It is where they pay them and then take a deduction on the 1120-H that a conflict results.

[jsamans]

It appears HOA fees are deductible in rental situations, this would suggest an allocation might be appropriate if a portion of a residence is used as a rental (ie, duplex) or used for business (ie office in the home, in-home daycare). This also brings up the question of basis and assessments. If an assessment is for a capital asset owned by the taxpayer, it would appear the amount should be added to the basis of the property (such as a a roof). In my association, the roofs were replaced several years ago with an assessment of $20,000 (they weren't reserving adequately and still aren't). However, most assessments are for repairs or the capital improvements are for common property. I also own a couple of timeshares. One of them isolates RE taxes and allocates them to owner's on the annual maintenance bill based on square footage. I deduct the small amount.

HOA fees are deductible for rentals, and yes, you may deduct the apportioned dues or assessments associated with maintenance of common elements. Regarding assessments, "You cannot deduct special assessments you pay to a condominium management corporation for improvements. However, you may be able to recover your share of the cost of any improvement by taking depreciation." As far as basis goes, "When you change property you held for personal use to rental use (for example, you rent your former home), the basis for depreciation will be the lesser of fair market value or adjusted basis on the date of conversion." (Pub 527, Chapter 4, Sections Condominiums and Renting Part of Property)

[taxxcpa]

I deduct a percentage of my HOA dues attributable to my office in my home. It covers insurance for the exterior of the building, maintenance, yard work, etc. My property taxes are assessed directly to me, not to the HOA.

[origun]

Be careful what you deduct on a 1120-H

Taxes and assessments on common areas should be deducted by the HOA on its 1120H. I prepare one 1120H for a friend and we have been doing like that for years. The individual unit owners are billed directly by the county for their portion of the RE taxes. I have not seen an HOA set up as a partnership or pass through entity. Not sure if IRS even allows that.

Condo fees, HOA dues can be deducted by the landlord on Sch E for rental units.

On a 1120-H, usually most of the income is "Exempt Function Income"--i.e., dues paid by homeowner. So you can only deduct expenses related to other income. In the case of one which I do, the only non-Exempt Function Income we have is some interest. Therefore I can only deduct expenses related to that interest and there are none. In some years I find it advantageous to file a 1120 instead of a 1120-H as then you can deduct more things although the HOA dues are considered income.

[Burke]

That makes sense, since if the HOA dues income is tax-exempt, deductions should only be allocated to taxable income. I do not do 1120-H's. But if the RE taxes are not a deductible item on that form, then we are back to the original question of whether the homeowner is entitled to a pro-rated deduction on his tax return. Putting aside rental property deductions and office-in-home or other business uses that deduct these dues, what is the individual taxpayer entitled to?