Taxes: deduction of HOA fees for rental

Hey guys,

Quick tax question (US Federal) I’m sure someone’s run into before: I just started renting out my condo in 2016. It was rented for 250 days of the year. My HOA fees are 400/month. Is it fair to claim a deduction for the entire portion of those fees representing the time the condo was rented (ie, (250/365)(40012) ~= 3288)?

I ask because most of what I’m reading online seems to suggest the answer is yes, but there is also discussion around how you can’t deduct ‘improvements’ directly (they have to be depreciated.) Some portion of the HOA fees goes to improvements (saving for a new roof, the HOA is improving the exterior lighting on the building, etc.) But it’s all funded out of regular HOA fees - there are no special assessments being considered.

Thanks!

-DNT

That’s an interesting distinction. We deduct all of our HOA expenses for our full time rental apartment. Our tax guy seems to be fine doing that, and the general consensus that I’m reading seems to indicate that it is okay. Our HOA is pretty good about budgeting for big ticket items (in ten years we’ve never had an assessment, our HOA has never gone up, and big ticket items like new roofs, paving, painting, etc. are always being done). It would be difficult to make this distinction at the time of paying a specific month’s HOA: these things are typically paid for out of a general “big expense” savings fund and there is no way to know beforehand if it’s going to go to a big improvement like a new roof or big “repair” like painting.

It would be a massive PITA, but our HOA certainly has an annual budget that shows what portion of dues are going to reserves, which are then dedicated to the big-ticket items that I think generally constitute ‘improvements.’

I really do hope it’s fine to just deduct dues, not just because it lowers my taxes now, but because otherwise, it makes the accounting way too difficult.

What the Homeowner’s Association pays for as improvement expenses is for them to depreciate … the only thing to look out for (and your HOA should tell you this) is any portion of your month dues that is used for lobbying the government is not deductible … HOA donations to Super-PAC’s, direct campaign contributions, hired lobbyists … kinda atypical for an HOA …

I belonged to a Rental Owner’s Association and they did use part of my dues for a lobbyist … but they sent me a notice about the actual percentage warning me to only only deduct the other part on my tax forms (line 10 on Schedule E to the Form 1040) …

ETA: Your calculation to prorate these fees is spot-on correct … in every way that is fair and equatable … it’s a fee both normal and necessary to the rental business and you’re only deducting the fees for when the building was available to rent …

Thanks!

Just clarify. You own this property and you are renting it out? If so, I’d treat it as rental property for tax purposes. It isn’t a deduction for HOA, it is a business expense. Also included as a business expense any costs associated with it for those months it was rented out such as utilities (if you paid for them), trash pick-up, cleaning services, etc. If you painted it before or after it was rented, that sort of thing. Claim all the rent as income for the property, minus the expenses and you have a net profit or loss.

It’s not a business expense, it’s a rental expense. Improvements would fall under business expenses.

IAAL. I Am Not A Tax Attorney, nor licensed in your jurisdiction, probably. This is just lay advice. So long as the HOA dues are fixed and there were no special assessments, your method is fine.

I’m not sure what the distinction is … improvements of any kind are reported on Form 4562 … whether from residential rental units or a corner hardware store … the only reporting difference is a different schedule to the From 1040 mostly because there’s certain expenses from rental units that are uncommon in most other businesses, like management fees and mortgage interest … and of course no SS taxes on rental income …

It’s the Homeowner’s Association that writes the check to the roofing company … so it’s the Homeowner’s Association that lists that expense on their Form 4562 … which they depreciate over 27.5 years straight-line method mid-month convention … and as long as the money reserves are showing up on the Homeowner’s Association’s balance sheet, it’s none of the OP’s problem …

I’m sort of perplexed by this part. AFAIK, the HOA doesn’t pay or file any taxes. I have a pretty high level of certainty that they don’t pay taxes, since I’ve seen all the budgets and there’s no provision for it, and if they’re filing taxes, it’s something that’s just taken care of by the management company. Sort of a tangent from the original thread, but that question’s been answered, and I’m curious about this now.

They could be some manner of 501(c) non-profit organization … in which case they do file, just no taxes are due … budgets are just guesses made beforehand, what you want to look at are the Income Statement and Balance Sheet, which are made after the fact and contain all the actual information about the HOA finances …

“Management company” ??? … sounds like another level of complexity to the operation … do any of your checks come back having been cleared through the Central Bank of The Bahamas? … you’ve got me curious too …

Is it a Homeowners’ Association at all? … from the IRS website “Homeowners’ associations”:

Emphasis and linkage mine

I sure don’t remember filling out a Form 4562 when I was filling out Form 1120’s … but it’s been a ton of years ago … obviously if there’s no tax liability to the HOA, then the depreciation deduction in meaningless … looks like a situation ripe for exploitation …