Nobody wants to pay for either HOA fees or property taxes,[1] but they are both necessary evils. HOA fees contribute toward community maintenance and upgrades, protecting property value. Property taxes subsidize community amenities, such as roads, schools, and police/fire departments, protecting against larger neighborhood degradation. Both are hot topics because most of the time they pay for amenities that not everybody utilizes. For example, the HOA fees may pay for a pool you do not swim in, while property taxes pay for schools that your children don't attend.

When purchasing a home, it's important to understand the extent of the financial burden for both and which ends up being costlier.

Financial Burden

The latest U.S. Census Bureau numbers say the average HOA fee in the U.S. sits at $243 per month, or $2,916 a year.[1] However, those numbers are an over-simplification of the actual costs. Specifically, 5.6 million homes pay less than $50 a month, 3 million homes incur costs of $500 every month,[1] single-family homes average about $300 a month ($3,600 a year), and high cost-of-living states like New York, California, Hawaii, and DC consistently see $500+ a month.

On the other hand, property taxes vary greatly depending on the zip code, with the national average hovering around $4,271 a year.[2] For example, New Jersey ($9767/year; 2.49% tax), Illinois ($4800/year; 2.27% tax),[2] New Hampshire ($6200/year, 2.18% tax), and Connecticut ($7200/year, 2.15% tax) lead the country in tax rates. This is very different from the states leading by HOA costs. Conversely, the states with the lowest property tax rates include Hawaii ($1893/year; 0.31% tax),[2] Alabama ($1266/year; 0.42% tax), and West Virginia ($1044/year, 0.59% tax).

In both scenarios, the fees and taxes can amount to $5000-$15,000 for a median home. This directly impacts property values. Lower taxes increase demand and thus home value.

How Do They Differ by State?

Let's look at three states for a median home: New Jersey, Hawaii, and Texas.

In New Jersey, property taxes are around $9767/year with median HOA dues around $3600/year. In this scenario, property taxes are much worse.

In Hawaii, property taxes are around $1893/year with median HOA dues around $7200/year. Clearly, the HOA dues are much higher, and this is most likely due to insurance policy costs associated with natural disasters.

Finally, Texas property taxes are typically $5200/year with HOA dues coming to $3000/year. Neither are significantly different from each other, but the property taxes unfortunately bite harder.

Nationally, property taxes are 46% higher than HOA fees ($4271 to $2916).[1][2] In addition, HOA fees can remain stagnant for years while property taxes generally increase 1-3% annually depending on the government tax structure. As such, it's safe to assume property taxes will outpace the HOA fees over time.

Benefits from Both

As mentioned at the beginning of this article, both fees are utilized for two completely different purposes.

Property taxes are utilized for public schools, police/fire departments, roads, libraries, parks, and government costs. Most are utilized by homebuyers, except for schools for couples without kids or retired couples.

HOA fees are local, being used for landscaping, maintenance, roofing, utilities, insurance, reserve funds, aesthetics, and general community upgrades. Their byproducts tend to be more direct and obvious. Similar to the property taxes, these HOA fees may be paying for a pool that isn't being utilized by all homebuyers, which is seen as a waste.

Financial Benefits

Property taxes provide significant tax incentives when compared to HOA dues. Specifically, due to the SALT (State and Local Taxes) federal tax deduction, up to $10,000 of property taxes can be written off per year when itemizing deductions. So, as an example, if a homebuyer has a 24% effective tax rate, they end up saving $2,400 on their tax bill.

Unfortunately, this same benefit does not directly exist for HOA dues, but do exist indirectly. Specifically, HOA dues themselves are not tax-deductible (since it's a personal expense), but when renting out a unit within an HOA, those dues are now a business expense and can be fully deductible (only if renting for the entire year; if renting for X% of the year, only X% of the dues are tax-deductible). Then, if you are self-employed and work out of your home, you can deduct Y% of your HOA dues if your office is Y% of your home. As an example, if HOA dues are $10,000, and a homebuyer has a 24% effective tax rate, they end up saving $2,400 on their tax bill.

As seen above, property taxes tend to offer more direct tax incentives available to all homeowners, but HOA dues can be manipulated to provide more financial benefits depending on the market.

Hidden Surprises

Unfortunately, both come with hidden surprises that are often never discussed by both homebuyers and realtors. Specifically, property taxes can be affected by new bonds (to pay for schools and roads) or budget shortfalls in the local government. Meanwhile, HOA dues are generally only affected by special assessments, catching up on reserve funds, and unexpected utility increases (as seen following the insurance premiums after the Florida 2021 incident).

Emotional Toll

Property taxes are generally only paid once or twice a year, enabling homebuyers to invest their 'taxes' to gather a return on their money before the money is actually due. They also tend to go toward larger, infrastructural changes (e.g. roads) that are required for day-to-day operations. And they have direct tax benefits for everybody, as seen above. This tends to indicate property taxes as non-optional, and subsequently less painful financial expenses.

HOA fees, while they tend to be practical, can be clouded in non-frugal, power-hungry HOA boards with no regard for the financial status of the community's homeowners. They are not beholden to anybody, rules can be added when deemed fit, violations can be applied liberally, and the fees tend to be viewed personally.

As such, homeowners tend to have a direct objection to the HOA dues as compared to property taxes.

Worst States

Both HOA dues and property taxes are levers that homebuyers can exercise when controlling for financial risk. Specifically, some states are more expensive than others.

New Jersey has the highest property taxes, as well as high HOA fees. This is also observed in New York (some of the highest HOA fees in the country), Illinois (Chicago inflates these prices), Connecticut (expensive, coastal HOAs), and Florida (no state income tax, but HOA fees have doubled due to the threat of hurricanes).

Meanwhile, West Virginia tends to not have many HOAs, while also having some of the lowest property taxes in the country. Similarly, Alabama and Arkansas follow suit with low taxes and low HOA fees. My opinion is these financial costs will shape where families move in the near future, as the disparity between states is growing more significant each year.

Takeaways

Generally, homebuyers should be paying for the following:

Expense	Low End	High End	Tax Deductible?
Property Taxes	$1,000	$10,000+	Yes (up to $10k SALT cap)
HOA Fees	$600	$7,200+	No (primary home)
Insurance	$1,200	$5,000+	No
Maintenance	$2,000	$10,000+	No
Total	$4,800	$32,200	-

While property taxes tend to be more expensive, HOA fees are at higher risk of sudden increases. It is vital to understand the market. While homebuyers cannot control their property tax rate, they do have a large say in the HOA they purchase into. As such, prospective homebuyers should monitor fair HOA prices in a neighborhood by using our free HOA Lookup Tool. This helps avoid the most volatile cost when purchasing a home, ensuring long-term financial stability.