Cohousing-L Mailing List: Re: tax exempt status for HOAs

[David L. Mandel (dlmandel]

This comment is accurate, but it could throw you off course, as did the word 
"tax-exempt" in Ken's query.
HOAs are governed by IRC 528, a very specialized set of rules that exempts 
member fees and most other income as long as it is spent on exempt 
functions, which is normally the case. Earnings on investments are the main 
example of taxable income for an HOA. Profits from a community business 
would be too.
California and, I presume, most states, parallel this with their own law, as 
I explained in a message a minute ago.
The combined federal state rate of taxation for the non-exempt income is 
quite high by the way, which is why we put a lot of our reserves into 
tax-free investments like municipal bonds and bond funds.
David Mandel, Sacramento

----- Original Message ----- 
From: "Buzz Harris" <buzz_harris [at] yahoo.com>
To: "Cohousing-L" <cohousing-l [at] cohousing.org>
Sent: Tuesday, August 28, 2007 11:37 AM
Subject: Re: [C-L]_ tax exempt status for HOAs


> --- Ken Lewis <kenlewisjr [at] yahoo.com> wrote:
> > I'm with Nevada City Cohousing in California and
> > last year we owed $5,000 in
> > tax to the state despite our non-profit status. The
> > federal tax was fine,
> > just for interest income, as expected. So, I
> > recently applied for tax exempt
> > status, hoping to avoid that large tax hit.
>
> Hi Ken.
>
> If the government of California deals with the issue
> of nonprofit status in the same way as other states,
> it will likely only recognize nonprofits that are
> officially recognized by the IRS under section
> 501(c)(3) of the Internal Revenue Code.  Those are
> generally charitable, educational or public service
> groups.  See:
>
> http://www.irs.gov/charities/charitable/article/0,,id=96099,00.html
>
> I've worked with and in the nonprofit world for many
> years, and it seems unlikely to me that a cohousing
> community, as such, would qualify under the Internal
> Revenue Code definitions.  I say that because, from an
> official perspective, we look like real estate
> developments which are privately owned and in which
> the owners can sell their units at a profit.  I
> suppose that it's possible that your state might treat
> you as tax-exempt, but I'd be surprised by that.  You
> might want to check with the office of your state
> treasurer or secretary of state (or an attorney
> knowledgeable about this area of law in CA) about it.
>
> Please note that there is a difference between being
> civic-minded, community-oriented, and environmentally
> aware (which all or most cohousing communities are)
> and being a nonprofit.
>
> Good luck!
>
> Buzz Harris
> Common Hearth Cohousing
> Eastern Massachusetts
>
>
>
>
> ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
>
> Buzz Harris
> Writer, activist & political researcher
>
> Interested in Cohousing in Massachusetts?
> http://www.common-hearth.org
>
>
> What used to be called liberal is now called radical,
> What used to be called radical is now called insane,
> What used to be called reactionary is now called moderate, and
> What used to be called insane is now called solid conservative thinking.
>
> -Tony Kushner
>
> http://civic-oracle.livejournal.com/
>
> ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
>
>
>
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