Do HOA fees include property taxes? Board members and owners alike often ask this question. Understanding what is and isn’t included as part of an association’s monthly fees is essential, as it allows them to make financial preparations accurately.
Do Condo HOA Fees Include Property Taxes?
Condo owners must pay property taxes on their units. The tax amount due is based on the assessed value of the condo unit, which owners receive from the local government. There are several factors that can affect the tax assessment, such as unit location, size, and condition. This means property taxes will vary from condo to condo and may even differ among individual units within the same HOA.
The party responsible for paying property taxes in Chicago is the condo owner. Owners pay these real estate taxes directly to the local tax authority. The COA does not pay them on the owner’s behalf.
Does the Condo Include Property Tax in Condo Fees?
When the COA as a whole must pay property taxes for its common areas, then this taxation amount may be included in the condo fees. For example, if a condo association maintains a clubhouse, that is considered a shared amenity and the COA must pay real estate taxes on it. The association then includes that expense within the annual budget. Owners help cover this cost through their condo dues.
Even in these cases, unit owners must still pay property taxes on their individual units. The association simply pays taxes related to properties that the association collectively owns.
Of course, any taxes paid as part of the condo dues would be in addition to the owner’s property tax responsibilities. Owners must review their condo’s governing documents to understand their financial obligations and what those obligations contribute to.
Do HOA Fees Include Property Taxes?
Homeowners associations are known for collecting dues that cover day-to-day expenses. These include maintenance, landscaping, and insurance. The subject of property taxes and HOAs is a tricky one, as some owners think that taxes are included in regular fees, too.
Homeowners must pay taxes on their individual properties themselves. They must file and pay these real estate taxes with the local government. Dues do not cover property taxes on private lots in single-family communities.
Does the HOA Include Property Tax in HOA Fees?
When it comes to property tax on common areas, the same principle that applies to condos also applies to HOA communities. This means that tax responsibilities are dependent on who owns the property.
Homeowners must pay real estate taxes on individual homes. Again, they pay this tax assessment directly to the local tax authority, which also calculates the tax due.
On the other hand, the HOA must pay real estate taxes on the properties it owns. These include clubhouses, swimming areas, and other amenities. Since these properties are shared across all owners, taxes are also divided among them. The HOA achieves this by including tax amounts in the budget before calculating monthly dues.
Are Condo HOA Fees Tax Deductible?
Whether or not owners may deduct condo fees from their personal taxes depends on the situation. In general, owners who use their unit as their primary home can’t deduct fees from their taxes. This is because dues are considered part of the cost of maintaining the unit. Since they are related to personal use, the IRS doesn’t allow tax deductions on returns.
That said, there are scenarios that allow unit owners to make their condo fees tax-deductible. These include:
- Rental Property. If the owner uses the unit as a rental property, condo fees usually fall under a business expense. Owners can typically deduct these fees as part of the operating costs of the rental property. Owners report this deduction on Schedule E of the federal tax return.
- Home Office Use. If the owner uses part of the condo exclusively and regularly for a qualified home office, a small portion of the fees may be deductible. The deduction corresponds to the percentage of the home used for business purposes.
- Mixed Use Property. If a unit serves both as a personal residence and a rental property during the year, condo fees may be partially deductible. The deductible portion generally corresponds to the period the unit was rented.
What Condo HOA Fees Include Instead
While association dues don’t typically cover property taxes, they usually include many other expenses. The exact coverage will depend on the association’s needs and its governing documents. That said, fees commonly include the following:
1. Amenity Maintenance
Condominiums and HOAs generally maintain and provide access to shared amenities. These include pools, gyms, clubhouses, and playgrounds. These spaces require regular maintenance and repairs, which fees cover.
2. Security Services
Depending on the community, security services may come with the package. This is usually true for gated communities, but others may have it as well. Fees can cover everything from security patrols and entry systems to surveillance equipment.
3. Trash and Recycling
In some neighborhoods, the association contracts with a waste management provider. Of course, municipalities may also provide this service, so boards should first check with their local government.
4. Exterior Building Maintenance
Condominium associations often maintain roofs, exterior walls, and shared structural components. This leaves interior unit maintenance to the owners.
5. Landscaping
Landscaping adds beauty to the neighborhood, thereby preserving property values and attracting buyers. Beyond that, proper landscaping also supports safety by removing blockages from walkways, preventing falling tree branches, and controlling overgrowth. Condo fees cover the cost of landscaping as well.
6. Snow Removal
In places where snow can disrupt traffic and daily life, associations may offer snow removal as part of condo fees. Partnering with a snow removal company before winter is essential, as it’s harder to find one when the storms come.
Do HOA Fees Include Property Taxes? Answered!
Owners pay association dues as part of their obligation to the community. They must understand how these dues work and what they cover. Board members should educate owners that individual property taxes are not included in regular dues and that owners must settle these taxes themselves.
For better condo management and tax preparation, get in touch with our team at First Community Management. We partner with more than 115 HOAs in the greater Chicago area and are here to help you and your association.