Cohousing-L Mailing List: HOA taxes

[Diana E Carroll (dianaecarroll]

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
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