Re: contingency fund questions
From: Rosemary McNaughton (astromezzogmail.com)
Date: Sat, 14 Nov 2009 18:49:09 -0800 (PST)
For all those in communities who carry forward funds to another year -
how does this work with your taxes?  If you file the 1120-H
(homeowner's association) then I know this is possible, but we have
been filing the 1120 because it is less restrictive in other ways and
in that case, to my understanding you can only carry forward money
tax-free in the capital replacement reserve fund.  Do you just accept
a 15% tax rate on these excess funds?  Or is there a way to take
deductions against those funds so as to reduce the taxable amount?

Our major concern is keeping a maintenance reserve for items like
exterior paint that don't count for the IRS as capital replacement.
But we'd also like to keep a new capital expenditures fund running,
and would consider a contingency fund to carry over from year to year.

We have been budgeting a contingency within our operating budget of
10% every year, after reserve contributions are taken out.  Committees
with unexpected needs can appeal to the finance committee and the
board to go overbudget, which effectively dips into contingency,
although we book things to the appropriate line items in budgets so we
can track real expenditures by line item for budget planning.

-Rosemary
Rocky Hill Cohousing
Florence, MA


On Fri, Nov 13, 2009 at 12:07 PM, Lynn Nadeau / Maraiah
<welcome [at] olympus.net> wrote:
>
> RoseWind Cohousing, Port Townsend WA , long built
> We have
> a) Annual budget, which includes specific line items for current
> operating expenses, also additions to reserves such as depreciation,
> accruals towards a cap for certain eventual expenses such as mower
> replacement, path maintenance; ten percent of the budget total (about
> $24,000) is the annual Contingency line item.
> This contingency money can be applied by the Steering team in
> specified situations such as - a funded item like insurance goes up in
> cost, or something unforeseen that needs prompt attention like the
> well pump breaks. For other uses of that money, community approval is
> needed.
>
> b) Unspent money from the annual budget is rolled over as a credit
> against assessments. This applies not to the very next year, but one
> year later. This is because we are formulating the 2010 budget already
> in September 2009, when the 2009 year-end figures are still
> unavailable. So once we figure our total funding needs for 2010, we
> subtract the unspent budget funds from 2008, then divide the total
> remaining into our per-household assessments for 2010.
>
> This is helpful in allowing line items not to be too scrimpy -- more
> like "up to $---" for X. Knowing that whatever isn't needed will come
> back to us to reduce future assessments.
>
> c) There are ongoing reserve funds. Some, like the common house
> depreciation, just keep getting a few more thousand dollars added each
> year. Others accrue to a cap, and then need no more additions.
>
> d) We also have some Undesignated Funds, which can be accessed with
> community approval for capital projects or other items not foreseen in
> the annual budgeting. Those funds resulted, years ago, when we "found"
> some money -- interest on investments, I think it was -- which had
> accumulated and not been folded into annual budgeting. It's served as
> a handy slush fund. This year we hit it up for $5000 for a greenhouse
> for our vegetable garden.
>
> Lynn Nadeau
> www.rosewind.org
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