What are Homeowners Association (HOA) Condo Fees?
Homeowners Association (HOA) fees are funds that are collected from homeowners in a condominium complex to obtain the income needed to pay (typically) for master insurance, exterior and interior (as appropriate) maintenance, landscaping, water, sewer, and garbage costs. HOA fees are typically paid monthly and run on average from $100-$700 per month – these are indeed estimates, and can vary depending on many factors (especially if there are higher-end amenities being provided via the HOA fees such as a concierge, pool, fitness center, or valet). Fees are normally set by the HOA's board of directors and adjusted annually – oftentimes, an HOA board of directors is simply all the homeowners in a complex or building, if it is small, or if there are a large number of owners, the board of directors is typically elected by all homeowners. Any excess HOA fees that exist after paying for pertinent services as described above are stored in an account and called reserve funds.
What are Condominium Special Assessments?
Occasionally, Homeowners Associations need to levy what are called special assessments. Special assessments are a one-time expense that the building (or more appropriately, the homeowners) needs to pay for, such as significant maintenance or repairs (i.e. a new roof for the building, façade brick repainting, etc.). Low monthly HOA fees, or inadequate reserve funds, have the potential to lead homeowners into a situation where a special assessment is necessary to cover large expenses.
Factor HOA Fees and Special Assessments into your Condo Purchase
When purchasing a condominium, HOA fees, as well as the status of special assessments, need to be factored into the purchase price and ongoing cost of living. Make it a point to review existing financial information for the building, including reserve fund levels, and special assessment information, when buying a condo.
Are HOA fees tax deductible?
The Internal Revenue Code does not provide for a deduction of homeowners association fees. Since these fees are charged by a private company or association, rather than a state or local government, these fees are not deductible.
What is deductible if I own my condo?
Although your HOA fees aren't deductible, your condominium can provide you with other valuable tax deductions. You may deduct any real estate taxes that you pay on your condominium. Additionally, any interest you pay on your mortgage and mortgage interest premiums are deductible on your personal income taxes.
What if I use my condo as rental property?
If you own a condominium and you use it for rental property, you may then deduct your HOA fees because it would be an ordinary and necessary expense of running your business. You may also deduct other rental expenses, such as insurance, repairs, taxes, utilities and legal fees. If your condominium has a special assessment, you may not deduct those expenses; however, you may be able to take a depreciation deduction.
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