Cohousing-L Mailing List: Re: Donations, was Financial Assistance

[Kelly Bachman (happyvalleykelly]

Different CPAs seemt to interpret tax law differently on the point of
whether donations to cohousing are taxable income.  These differences are
likely because the situation of donations to an HOA is so unusual as to not
be covered in the tax code.

1.  The Least Conservative View: Gary Porter, a CPA specializing in HOA's,
says that "such donations would be considered contributions to the
capital of the condo corporation under IRC Section 118 for tax purposes, so
would not be taxable."  There are several cohousings that have set up an
"Eco Fund" to collect donations for a future eco project like upgrading gas
heating to electric.
2.  The Middle Ground - A local CPA recommended a safe harbor for donations
is for them to be for a specific qualified reserve component.  The money
must be spent in the same year unless the item is an upgrade of an existing
reserves component or functionality.  Donors must sign an agreement that 1)
they understand the donation is not tax deductible on their personal tax
return and 2) that there will be no refunds.  This view stems from the
original reason congress enacted IRC 528 to exempt HOA income from tax on
dues collected for reserves.  "The committee believes it is not appropriate
to tax revenues of an association of homeowners who act together if an
individual homeowner alone would not be taxed on the same activity."  Thus
the impact of IRC 528 was to exclude from income those items which would
not be taxable to homeowners for the purpose of enhancing or maintaining
the value of their residences. This is the view that Bellingham Cohousing
takes.
3.  The Most Conservative View - expressed by the CPA for Village Hearth
below is that donations are taxable income to cohousing.  Perhaps this is
because donations are not "based on the assessed value or size of the
property" (Section 1.528-9) such as dues allocated by square feet.

Note that Bellingham Cohousing switched to a regional CPA firm specializing
in HOAs for our taxes.  HOACPA.com was recommended to us by another
cohousing.  We have been happy with their service for the past 2 years and
happy with the cost of $230 for the 1120-H preparation.

Kelly, Treasurer
Bellingham Cohousing

On Mon, Mar 6, 2023 at 12:43 PM Linda Hobbet <coho [at] lindahobbet.com> wrote:

> I live in Village Hearth in North Carolina. We were told by our
> accountant, who is experienced in HOA accounting, that we should pay
> federal taxes on donations to the community more than $500 per year from
> any person. To me, this doesn't seem right (though probably correct
> legally) regarding donations from owners. To me, if I donate toward an
> improvement it is no more than  family member contributing to upgrading
> the home the family lives in.
>
> Would it be possible to get a definitive answer to this from lawyers in
> cohousing? If the answer is that it is taxable, could we get an
> appropriate amendment written specific to cohousing that we can lobby for?
>
> I expect it would require a description of cohousing that would
> differentiate it from the usual condominium complex. As a start I
> propose communities of 50 or fewer units with decisions made by 100% or
> near 100% (suggest a number) agreement by owners.
>
> Linda Hobbet
>
> On 3/4/2023 1:00 PM, Kelly Bachman wrote:
> > We have raised funds by donations instead of dues for upgrades including
> a
> > heat pump to replace a gas furnace in the common house, an EV charging
> > station, and a hot tub. This helps keep dues affordable.
>
> --
> VillageHearthCohousing.com
> 706-202-7178
> coho [at] lindahobbet.com
>
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