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What You Need to Know About HOA Fees

by
Gordon W. McNamee
on
4/29/2020
What You Need to Know About HOA Fees

If you're a regular viewer of one of the popular homebuying shows, you've probably seen couples shopping and being shown lovely condominiums or townhomes that are well within their budget, only to have the star reference the homeowners association – or HOA - fees. The buyers are usually stunned when they realize how much these fees add to the home's cost: it often takes the property beyond their budget. If you're considering purchasing a property with an HOA this is an issue that you may be confronted by as well.

Though having a homeowners association alleviates the need to address some typical homeowner maintenance items, the fees need to be considered.

What are HOA fees and what do they cover?

Most townhouse developments and condominiums have homeowners associations, and they are becoming increasingly common in new single-family home communities as well. These groups establish guidelines and rules regarding what homeowners can and cannot do with their properties, and also manage and arrange for essential maintenance services, including:

  • Maintenance of common areas
  • Community amenities such as pools, gyms or walking trails
  • Water and sewer service
  • Trash removal
  • Property insurance
  • Common area repairs

Though at first glance these fees may feel burdensome, a closer look often reveals that they save homeowners time and money.

How HOA fees are charged

In most cases, homeowners submit their HOA fees monthly, though other intervals are available. Some communities provide the ability to create automatic payments rather than requiring residents to submit checks. The fees charged by HOAs vary widely based upon the services provided, geographic location and the type of community being served. While Realtor.com reports that the fees average between $200 and $300 per month, homeowners who live in condominium buildings that provide amenities such as pools, gyms, security, and community rooms may see much heftier fees of over $1,000 per month.

Though you'll always be made aware of what the HOA fees are prior to making a purchase — and will be provided a copy of the community's rules too — there is no telling when special assessments to cover sudden maintenance needs may arise, and homeowners' associations' boards meet regularly to discuss and vote on whether the fees need to be increased, whether as a result of inflation, an added service or amenity, or anything else. Potential homeowners considering purchasing a property whose HOA fees put them at the top of their budget should keep this in mind, as the obligation to pay an increased fee exists, whether you can afford it or not.

What your HOA fee buys

Though a potential homeowner who has not previously paid a homeowner fee may view the charge as onerous, consideration of what the fee buys may change their viewpoint. Services and amenities covered by HOA fees often include the following:

  • Maintaining common areas – Though every homeowner is responsible for maintaining their own property, HOA fees will often provide upkeep for things like snow removal and paving any parking lots that may be associated with the community. Small townhouse communities' HOA fees may include lawn mowing and mulching, fertilizing, pest control or paving the roads, as well as trash removal, while condominiums' maintenance fees will pay for keeping lobbies, elevators and laundry rooms clean and the equipment operating.
  • Amenities – If a community provides its residents with amenities including tennis courts, swimming pools, club houses, gyms, playgrounds and walking trails, the HOA fees will cover the costs to keep them clean and safe.
  • Water and sewer service – Some homeowners associations pay for the water and municipal sewer service for the entire community in a single payment rather than having a bill sent to each individual owner.
  • Trash services – If your community is not part of the municipal trash service route, your HOA will arrange for a private trash removal company and recycling company to collect trash.
  • Property insurance – Though every homeowner needs to purchase their own homeowners insurance policy, HOA fees often cover damage to common areas, as well as premises liability for those areas.
  • Maintenance and repair of common areas – When a community with a homeowners association has a common area that requires repair, the fees for those repairs are generally paid out of homeowners' fees. This may include signage for a townhouse development, repairs to a broken elevator or laundry area, flooding and more. 

Taxes and your HOA fees

Though some homeowners believe that their HOA fees are deductible in the same way that interest on their mortgage is, that is unfortunately not the case unless you've purchased the property as a rental: if that is the case then you will be able to deduct the expense as part of the expense of earning rental income. Homeowners who are self-employed and who work from home and take the home office deduction will also be able to deduct a portion of the fees if they can associate them with the part of their home that represents their workspace. Calculating the percentage of square footage your home office represents can lead to significant deductions for HOA fees that you pay.

Should you skip properties with HOA fees?

Though many potential homebuyers have a knee-jerk reaction against paying homeowners' fees, it is worthwhile to stop and add up what they provide versus what you would have to pay out-of-pocket for the same service and amenities. Snow removal, lawn mowing, availability of a pool and a gym and security all add up quickly, and a back-of-the-napkin calculation may show that it actually saves you money in the long run.

If you decide that you simply can't be subjected to fees that go over and above the cost of the home itself – or whose HOA fees have the potential of increasing every year — then make sure that you let your real estate agent know that before you begin your search. Avoiding properties that have an HOA is the best way to protect yourself from falling in love with a property that you are not willing to consider because of its fees.

Any further questions about the tax implications of buying a home with an HOA? Contact your tax professional.

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Gordon W. McNamee

Gordon W. McNamee

Gordon W. McNamee is a Certified Public Accountant (CPA) based in Rancho Cucamonga, CA. Gordon W. McNamee can assist you with your tax return preparation, payroll, accounting and tax planning needs. <br /> <br /> 2021 is Gordon W. McNamee, CPAs 38th year in the profession. As as a former IRS agent (1984 through 1987), Gordon has been in public accounting since 1987. Gordon specializes in individual, corporate, HOA, trust, estate and payroll taxes. He also prepares financial statements and provides accounting & bookkeeping services. He enjoys making his clients feel at ease while providing a personalized professional service.

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