The Internal Revenue Service allows taxpayers to deduct certain homeownership costs on their tax returns. Generally, homeowners can deduct personal property taxes, real estate taxes and their mortgage interest payments. The IRS does not allow taxpayers to deduct transfer taxes, stamp taxes, utility costs, trash service fees or homeowners' association fees.
Homeowners' Association Dues
Homeowners’ association dues are payments made by homeowners to fund general maintenance funds used to maintain local clubhouses, pools, common areas and to purchase general liability insurance for accidents on common grounds. These fees are not deductible since they are solely used to help local homeowners and not used to help the general public. Homeowners purchasing condominiums are generally required to purchase condominium insurance, and each owner pays a portion of the premium for the master policy.
Deductible real estate taxes are those paid to local or state governments. Homeowners can deduct their real estate taxes if their local tax authorities assessed taxes uniformly across all homeowners based on their assessment costs. However, local real estate taxes assessed when homeowners improve their property are not deductible unless they are related to maintenance costs. Deductible personal property taxes are those on boats, cars or other personal property.
Mortgage Interest Deduction
The IRS allows homeowners to deduct the interest paid on mortgages used to purchase their primary or secondary residences. Similarly, taxpayers can deduct the amounts they paid as “points” to secure their loans over the life of the loan, and points are not fully deductible in the year homeowners paid them to obtain their loans unless they paid them to secure their principal residences and reflect customary lending procedures and costs within their geographical areas.
Public Policy Reasons
The federal government does not allow taxpayers to deduct fees imposed by local private or nonprofit associations. The IRS generally limits deductible taxes to those imposed by local and state governments collected uniformly. Since homeowners’ association dues are used to benefit only local neighborhoods, the IRS does not consider them to be an official tax imposed on the general public.