HOA taxes
From: Diana E Carroll (dianaecarrollgmail.com)
Date: Sun, 7 Feb 2010 06:35:24 -0800 (PST)
My read on the 1120-H tax requirements are that you can include those as function-related if they benefit the whole community, and not specific individuals. So we include common house internet service, childcare for general meetings, landscaping & gardening supplies, etc.

What you CAN'T include are things specific to individuals. So for instance our community maintains storage space, and people can "rent" storage for their exclusive use. That income doesn't meet the tax exclusion requirements, so we pay taxes on it (offset by any expenses that we can tie specifically to maintaining the storage space.)

The example the IRS gave was that if people pay on a per-use basis to use laundry machines, that is taxable and in the strict limits you mention. If the HOA maintains the laundry machines for everyone's use and includes usage in the monthly assessments, that amount meets the non-taxable requirements. (Our community recently decided to move from a per-use approach to an usage-include-in-condo-fees approach, which reduces our taxable income.)

If you have a different read on the taxes I'd like to hear what it is. We haven't yet filed taxes yet since we are in our first year! I've been pouring over the IRS materials on this to try to understand it.

- Diana

On 2/7/2010 9:14 AM, Rosemary McNaughton wrote:
I'd like to know the same.  Our community has been perplexed by how to
handle functions that aren't related to the condominium association
function (property maintenance).  Meals, childcare, affordability
fund, community life, the garden, car-sharing, raising chickens...  If
you are filing the 1120-H tax form, there are strict limits on how
much of your income and expenditures can be non-function-related.  We
had to spin off meals from the condo association when we realized
that, and it's just run with a personal bank account right now.  I'd
done a search on the archives here and found that one community at
least had formed a sub-corporation for the common meals.

If you're filing the plain 1120, as we do, I'm not as clear on what
the restrictions are, but I've been wondering if it would be more
appropriate to set up a separate entity to encompass the
non-property-maintenance activities of our community.  We may end up
seeking legal and tax advice on this, but I'd love to hear what other
communities have done.  I believe in our state LLCs must pay a
$500/year filing fee, which would overwhelm the pretty small budgets
we're talking about here.

Another issue that concerns me is insurance restrictions and health
codes - if we set up something formal for meals, do we have to be
inspected by the city?  Do our childcare providers need to be
licensed?  If we charge for people to stay in our CH guest room do we
need a lodging license?  Seems like a lot of big questions to worry
about for very small operations, but I admit it's been paralyzing -
the amount of money we're talking about is so small that it doesn't
seem to make sense to pay to get everything done perfectly and
legally, but we also don't want to mess around with something that
would put our condo operations at risk.

-Rosemary McNaughton
Rocky Hill Cohousing
Florence, MA

On Tue, Jan 26, 2010 at 12:38 PM, Diana E Carroll
<dianaecarroll [at] gmail.com>  wrote:
Speaking from a banking perspective...what is the legal entity that owns
the bank account?  did you set up an LLC or does an individual own it or
what?  Thanks.

We've had a few things we'd like to handle as financially separate
systems but couldn't figure out how to do it without registering the
"club" as an LLC.

- Diana

On 1/26/2010 12:30 PM, Lynn Nadeau / Maraiah wrote:
Someone just asked for insights about "splitting off" aspects of the
meal system from the whole community operation. We do that with the
accounting part: Separate books, and separate bank accounts, are kept
for the weekly cooked meals. The account holds both the kitty for
pantry supplies and the escrow money people have pre-paid for future
meals. Dinner fees are paid into it; cooks are reimbursed from it;
checks are written from it for pantry supplies.

Ways it's not split: Our Common House Operations team supervises the
systems for meals, does most of the pantry shopping, and maintains the
accounting. Also, community annual assessments have included a couple
of vegetable-garden "shares" so that any Monday-night cook can use our
garden produce.

Maraiah Lynn Nadeau, RoseWind Cohousing, Port Townsend WA
www.rosewind.org
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Now is the time for community........Mosaic Commons cohousing
Homes still available...........http://www.mosaic-commons.org
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Now is the time for community........Mosaic Commons cohousing
Homes still available...........http://www.mosaic-commons.org

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