Re: What are communities doing now that we arehittingdifficult financial times?
From: Kay Argyle (kay.argyleutah.edu)
Date: Mon, 22 Dec 2008 16:39:46 -0800 (PST)
"I wonder if there might not be some tax advantages to leaving unpaid HOA
fees on the books as opposed to forgiving them? I know it is so for
businesses so they can claim the losses."

If I understand the matter correctly, HOA fees are usually not taxed, so
there's nothing to claim a loss against.

Our management committee recently met with our accountant (which is relevant
to another thread, about why to have a local accountant -- being able to sit
down and ask questions for an hour upended some long-standing misconceptions
about our finances).

Disclaimer -- I don't understand bookkeeping, let alone accounting. This is
based on my shaky grasp of what we were told and doesn't constitute
'advice'. At best it will provide a starting point to ask more intelligent
questions of your own financial advisors.

Our common areas are owned by the condo association (an LLC), which is
itself owned by the home-owners. Therefore, assessments paid by home owners
to the association are still owned, at a remove, by the home owners. Call
this 'exempt' HOA income. 

Investment income (interest, dividends, capital gains) and special fees such
as facilities rental, laundry fees, etc., charged for considerations not
equally available to all residents, constitute a second type of HOA income.
Call this 'nonexempt.'

An HOA has a choice -- pay 30 pct taxes on nonexempt income, or pay 15 pct
on both exempt and nonexempt. Typically nonexempt income will be enough
lower than exempt that paying the higher tax rate on just that portion is
cost-effective.

Clustering capital expenditures into the same year increases the chance of
hitting the tipping point at which net exempt income (assessments minus
capital expenses) is lower than nonexempt, justifying a switch to the lower
tax rate. Unpaid HOA fees would be relevant to taxes only in such low net
income years (I think -- see above disclaimer).

One result of our new understanding is that in our upcoming annual budget we
will be recommending that laundry fees be discontinued, and laundry
maintenance and replacement be funded from assessments. Given taxes and
bookkeeping, the financial advantages of charging a laundry fee are less
than they first appear.

The laundry fee was always on shaky ground philosophically. One point of
cohousing is to encourage resource sharing -- two energy-efficient
water-thrifty sturdy commercial frontloaders compared to twenty-six
toploaders. While some residents use the laundry more than others, that's
true of all community resources; it's just that loads of wash are more
easily quantified than use of (say) the kids room. (There's a capitalist
tendency, to which cohousing is not immune, that, if you can quantify any
part of something, you can attach a price to it; and if you can attach a
price to it, you SHOULD attach a price to it.)

Kay
Wasatch Commons


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