Are CDD Fees Tax Deductible? Rules, SALT Cap, and Rentals

CDD fees are partly tax deductible. If you itemize, you can deduct the operations and maintenance portion of the assessment and the interest portion of the capital assessment. The principal portion, which repays the district’s construction bonds, is not deductible — but it gets added to your property’s cost basis and reduces your taxable gain when you sell.

The Two Parts of a CDD Assessment

Every CDD assessment splits into two pieces, and the split is what determines what you can write off.

The Capital Assessment (sometimes called the Debt Service Assessment) repays principal and interest on the bonds that funded the district’s original infrastructure — the roads, sewer lines, and stormwater systems that made the development buildable. It typically runs 20 to 30 years.

The Operations and Maintenance Assessment (O&M) covers the annual cost of running the district: landscaping of common areas, insurance, utilities, administration, and upkeep of shared amenities like pools and clubhouses.

What You Can Deduct

Federal tax law blocks deductions for local benefit assessments that tend to increase property value, which covers the construction financed by a CDD. The statute then carves out an exception for amounts allocable to maintenance or interest charges tied to those local benefits.¹

That exception is what makes two pieces of your CDD bill deductible:

The O&M Assessment, because it pays for maintenance and repair of existing infrastructure rather than new construction.
The interest portion of the Capital Assessment, because interest on a local benefit assessment falls under the same statutory carve-out.

Both deductions require itemizing on Schedule A. The IRS is also strict about substantiation: if you can’t identify the specific dollar amount going to maintenance or interest, you can’t deduct any of it.²

What You Cannot Deduct

The principal portion of the Capital Assessment is not deductible. That’s the money paying down the actual bond balance for infrastructure that increased your property’s value.¹

Those payments aren’t lost, though. They get added to your property’s cost basis.³ A higher basis means less taxable profit when you sell, so the benefit is deferred rather than annual.

How the Basis Increase Helps at Sale

Your taxable gain at sale equals the sale price minus your adjusted basis. Every dollar of CDD principal you’ve paid raises that basis and shrinks the gain.

For a primary residence, the first $250,000 of gain ($500,000 for married couples filing jointly) is already excluded from tax. So the basis bump from CDD principal mostly matters if your home has appreciated enough that the gain would otherwise exceed the exclusion — for example, an early buyer in a development that grew quickly. Keep every year’s assessment breakdown. Old tax returns are easy to lose; your CDD’s annual budget documents can fill the gap.

The SALT Cap and Whether Itemizing Pays Off

Your deductible CDD amounts count as state and local taxes on Schedule A. For years the SALT cap was $10,000, which made the CDD deduction functionally worthless for homeowners who had already hit that ceiling on regular property taxes and state income taxes alone.

That changed starting in 2025. Congress raised the SALT cap to $40,000, with 1% annual increases through 2029. For the 2026 tax year, that puts the cap at roughly $40,400 for single filers and married couples filing jointly, and about $20,200 for married taxpayers filing separately.⁴ A homeowner paying $8,000 in regular property taxes and $5,000 in state income taxes has $13,000 in SALT before CDD fees are even counted, leaving plenty of headroom for the CDD deduction to actually save money.

The cap phases down at higher incomes. If your modified adjusted gross income exceeds roughly $505,000 in 2026 (half that for married filing separately), the $40,400 cap shrinks by 30 cents for every dollar over the threshold, bottoming out at $10,000.

None of this helps unless your total itemized deductions — SALT, mortgage interest, charitable contributions, and the rest — exceed your standard deduction. A homeowner with a recent mortgage, meaningful property taxes, and CDD fees can often clear that bar. A single filer with a small mortgage balance and modest property taxes may find the standard deduction still wins, which makes the CDD deduction academic. Run the numbers both ways.

Getting Your Assessment Breakdown

The IRS requires you to identify the exact dollar amount going to maintenance, interest, and principal before claiming any deduction. A single CDD line on your county tax bill isn’t proof of anything on its own.²

Sources that will give you the split:

Your CDD’s adopted annual budget, usually published on the district’s website, which shows how much of each per-unit assessment goes to debt service (split between principal and interest) and how much to O&M.
The district management company, whose contact information is listed on the district’s website.
The district’s annual audited financial statements, which break down assessment revenue and spending by category.

Save these documents. If the IRS questions the deduction, the budget or audit is what substantiates it.

Rental Property Is Different

If the CDD property is a rental rather than your primary residence, the assessments are deductible as ordinary business expenses on Schedule E, not as itemized personal deductions on Schedule A. Schedule E deductions are not subject to the SALT cap, so the full O&M and interest amounts come straight off rental income. The principal portion still isn’t a current deduction, but it increases the property’s depreciable basis and generates additional depreciation over time.³

1
Office of the Law Revision Counsel. 26 USC 164 – Taxes
2
Internal Revenue Service. Publication 530 (2025), Tax Information for Homeowners
3
Internal Revenue Service. Publication 551 (12/2025), Basis of Assets
4
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026