Condominium Taxation: Rules for Owners, Landlords, and Sellers

Condo taxes work like taxes on any other home you own, with one wrinkle that runs through every question: you own the inside of your unit outright and share ownership of the building’s common areas with everyone else on the deed. That split shapes your property tax bill, what you can and can’t deduct, how HOA charges are treated, and what happens when you rent the unit out or sell it.

How Your Property Tax Bill Is Calculated

Local assessors treat each condominium unit as its own taxable parcel. The bill has two pieces stitched together: the assessed value of your individual unit and your allocated share of the common areas. Unit value comes from square footage, interior condition, and comparable sales. Common elements — land, roof, lobbies, pools — are valued separately and divided among owners based on the ownership percentage in the condominium’s master deed or declaration.

The assessor adds those two numbers to get your total assessed value, and your property tax is calculated from that combined figure. You owe the full amount, even though part of it represents space you don’t exclusively control.

After a purchase, some jurisdictions issue a supplemental tax bill if the sale price triggers a reassessment higher than the prior value. This one-time bill covers the difference for the remainder of the tax year and arrives separately from the regular annual bill, which catches many first-time buyers off guard. If you escrow taxes through your mortgage, check that your lender picks up the supplemental amount.

Deductions When You Live in the Condo

Owner-occupants get the same federal deductions as single-family homeowners. Both mortgage interest and property taxes go on Schedule A of Form 1040.

Mortgage Interest

You can deduct interest on up to $750,000 of mortgage debt used to buy, build, or substantially improve your home ($375,000 if married filing separately). That limit applies to loans taken out after December 15, 2017; older mortgages may qualify for the higher pre-2017 cap of $1 million.¹ Points paid at closing are also deductible, either in full the year you pay them or spread over the life of the loan.

State and Local Taxes

The combined deduction for state and local income (or sales) taxes plus property taxes is capped at $40,000 for most filers starting in 2025, or $20,000 if married filing separately. That is a large jump from the $10,000 cap that applied from 2018 through 2024. The cap is indexed for inflation through 2029, then drops back to $10,000 unless Congress acts again.²

High earners face a phase-down. If your modified adjusted gross income exceeds roughly $500,000 ($250,000 married filing separately), the cap shrinks by 30 cents for every dollar over the threshold. It can’t drop below $10,000 ($5,000 married filing separately), so even fully phased-out taxpayers keep the old cap.²

Whether Itemizing Actually Helps

These deductions only matter if your itemized total beats the standard deduction. For 2026, the standard deduction is $32,200 for married couples filing jointly, $16,100 for single filers, and $24,150 for heads of household.³ A condo owner with a sizable mortgage and high state taxes usually clears that. Owners with smaller mortgages or in low-tax states may find the standard deduction wins.

HOA Fees and Special Assessments

Monthly HOA fees are not deductible when the condo is your primary home. The IRS treats them as a personal maintenance expense.

Special assessments split into two categories. An assessment that funds routine repairs or maintenance is treated the same as a regular HOA fee, so it’s not deductible either. An assessment that funds a capital improvement — a new roof, an elevator replacement — is added to your cost basis in the condo instead. A higher basis lowers your taxable gain when you sell, so the benefit is deferred rather than lost. Your association should be able to tell you which category any given assessment falls into, and that classification matters at tax time.

The Home Office Exception

If you’re self-employed and use a dedicated space in your condo regularly and exclusively for business, the home office deduction is the only path that turns part of your HOA fees into a write-off while you’re living in the unit.

The simplified method lets you deduct $5 per square foot of office space, up to 300 square feet, for a maximum deduction of $1,500. It skips the recordkeeping but doesn’t reach HOA fees.⁴

The regular method uses actual expenses. You take the percentage of your condo’s square footage devoted to the office and apply it to housing costs including your share of HOA fees, property taxes, mortgage interest, insurance, and utilities. It takes more paperwork, but for condo owners it often produces a larger deduction because the HOA piece is otherwise off-limits.⁴

Renting the Condo Out

Renting flips the tax picture. Rental income goes on Schedule E, and a wide range of operating costs become deductible against it.⁵ That includes property taxes, mortgage interest, insurance, utilities, advertising, property management fees, the portion of HOA fees covering routine maintenance, and special assessments used for repairs. Costs that are non-deductible when you live in the unit flip to deductible when you rent it out.

Depreciation

Depreciation is usually the largest non-cash deduction available to a rental condo owner. Residential rental property is depreciated straight-line over 27.5 years under MACRS.⁶ Your depreciable basis is the cost of the building (excluding land value) plus any capital improvements. On a $300,000 condo where $50,000 is allocated to land, you’d depreciate roughly $9,091 a year, reducing taxable rental income without spending additional cash. The trade-off comes later: depreciation you claimed (or could have claimed) is recaptured when you sell.

Mixed Personal and Rental Use

If you use the condo yourself for part of the year and rent it out for the rest, expenses have to be split between personal and rental days. The IRS allocates based on the ratio of fair-rental days to total days used. Mortgage interest and property taxes tied to personal use can still go on Schedule A, subject to the $750,000 mortgage limit and the SALT cap.¹

The 14-Day Rule

Section 280A creates a clean break for minimal rental use. Rent the condo out for fewer than 15 days in a year and you don’t report the rental income at all. You also can’t deduct rental-related expenses for those days, though mortgage interest and property taxes remain deductible on Schedule A.⁷

Cross the 15-day line and everything reverses: rental income becomes taxable, expenses become deductible, and a second rule appears. If your personal use exceeds the greater of 14 days or 10% of the days the unit is rented at a fair price, the IRS treats the condo as a personal residence that produces some rental income. Deductible rental expenses are then capped at gross rental income, so you can’t generate a net rental loss.⁷

Passive Loss Limits

Rental real estate is passive activity, so losses normally can’t offset wages or investment income. Disallowed losses carry forward against future passive income and are fully deductible when you sell.

An exception exists for owners who actively participate — a fairly low bar that includes choosing tenants, approving repairs, and setting rental terms. Active participants can deduct up to $25,000 of rental losses against non-passive income. That allowance phases out by 50 cents per dollar of modified AGI above $100,000 and disappears at $150,000. Married taxpayers filing separately are held to $12,500, with the phase-out starting at $50,000 of modified AGI.⁸

The 3.8% Net Investment Income Tax

A 3.8% surtax on net investment income applies to individuals whose modified AGI exceeds $200,000 (single) or $250,000 (married filing jointly). Net rental profit counts, and so does gain on a sale except to the extent it’s excluded under Section 121. These thresholds are not indexed for inflation, so more taxpayers hit them each year.⁹

Selling the Condo

Taxable gain is the difference between your net sale price and your adjusted basis. Adjusted basis starts with the original purchase price, goes up for capital improvements (including your share of special assessments that funded common-area improvements), and comes down for any depreciation claimed during rental use.

The Section 121 Exclusion

If you used the condo as your primary residence, you can exclude up to $250,000 of gain from income, or $500,000 for a married couple filing jointly. To qualify, you must have owned the home and lived in it as your principal residence for at least two of the five years before the sale. For joint filers claiming the $500,000 exclusion, both spouses must meet the use test, but only one needs to meet the ownership test.¹⁰ You also can’t have claimed the exclusion on another home sale within the prior two years.¹¹

If you rented the condo or otherwise used it for a non-qualifying purpose before moving in, a portion of your gain tied to those periods can’t be excluded. The IRS calls these “periods of non-qualified use,” defined as any time after 2008 when neither you nor your spouse used the property as a main home. Time after you move out but before you sell isn’t counted as non-qualified use, so moving first and selling later doesn’t cost you the exclusion, as long as you’re still inside the five-year lookback.¹¹

Depreciation Recapture

Even when Section 121 covers your entire gain, depreciation claimed during rental years doesn’t get excluded. Cumulative depreciation is recaptured and taxed at a maximum rate of 25%, higher than the long-term capital gains rate that applies to the rest of the profit.¹² Recapture also applies to depreciation you could have claimed but didn’t, so skipping the deduction during rental years doesn’t get you out of it.¹¹

1031 Exchange for an Investment Condo

If you’ve been holding the condo as a rental, you may be able to defer the entire capital gain by exchanging into another investment property under Section 1031. The replacement must also be real property held for productive use in a business or for investment. You have 45 days from closing to identify potential replacements and 180 days to complete the exchange.¹³ A condo you live in doesn’t qualify. If use has been mixed, only the rental portion is eligible, and most exchanges require a qualified intermediary to hold proceeds between the sale and the purchase.

If the Seller Is a Foreign National

FIRPTA requires the buyer to withhold 15% of the gross sales price on a purchase from a foreign seller and remit it to the IRS. A 10% rate applies when the buyer intends to use the property as a personal residence and the sale price is between $300,001 and $1,000,000, and no withholding applies to a buyer’s personal-residence purchase at or below $300,000.¹⁴ The withholding is a prepayment, not a separate tax. Foreign sellers file a U.S. return reporting actual gain, and any excess is refunded.

Inheriting a Condo

When you inherit a condo, your cost basis resets to fair market value on the date of the prior owner’s death. This stepped-up basis wipes out the appreciation that built up during the decedent’s lifetime, so a sale soon after inheriting may produce little or no capital gains tax.¹⁵ The step-up also erases depreciation recapture that would have hit the prior owner. If the decedent rented the unit for years and claimed depreciation the whole time, that accumulated depreciation effectively disappears for purposes of calculating the heir’s gain.

1
Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction
2
Internal Revenue Service. Topic No. 503 Deductible Taxes
3
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
4
Internal Revenue Service. Simplified Option for Home Office Deduction
5
Internal Revenue Service. Topic No. 414 Rental Income and Expenses
6
Internal Revenue Service. Publication 946, How To Depreciate Property
7
Office of the Law Revision Counsel. 26 USC 280A – Disallowance of Certain Expenses in Connection With Business Use of Home, Rental of Vacation Homes, Etc.
8
Office of the Law Revision Counsel. 26 USC 469 – Passive Activity Losses and Credits Limited
9
Internal Revenue Service. Questions and Answers on the Net Investment Income Tax
10
Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence
11
Internal Revenue Service. Publication 523, Selling Your Home
12
Internal Revenue Service. Topic No. 409 Capital Gains and Losses
13
Office of the Law Revision Counsel. 26 USC 1031 – Exchange of Real Property Held for Productive Use or Investment
14
Office of the Law Revision Counsel. 26 USC 1445 – Withholding of Tax on Dispositions of United States Real Property Interests
15
Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent