Cohousing-L Mailing List: Re: Tax Implications of Voluntary Donations?

[Raines Cohen (rc3-coho-L]

On Tue, Aug 4, 2026 at 5:45 AM Diana Carroll via Cohousing-L <
cohousing-l [at] cohousing.org> wrote:

> Assuming you file an 1120-H tax return as almost all condominiums and HOAs
> do, "donations" are taxable as "non-exempt function income", meaning 30%
> tax. You can offset this by deducting any expenses related to non-exempt
> functions, including for instance marketing expenses.
>

Thank you, Diana. This is a very important point for anyone considering
this path. And in my visits over the last quarter century to nearly 150
cohousing neighborhoods, living in two, and advising many, I've heard lots
of folks (typically older members who don't have kids or if they do, the
kids don't need or want the home or its full value) exploring this option
recently.

While I see lots of enthusiasm for the idea of supporting your community by
donating a home, it is important to take this practical consideration into
account in selecting or creating an appropriate structure for doing so.
Just because your community has a legal entity up and running for one
purpose, does not make it effective for another.

99% of US cohousing is set up as Condominums with Home-Owner Associations
(HOAs) because that's the optimal legal form for managing privately owned
homes with shared interests. It provides an expedited, simple,
well-understood path that cities will approve and banks will lend on
competitively -- because we are fitting in the system and becoming part of
a larger market.

This type of organization, in most states categorized as a type of
mutual-benefit nonprofit organization, makes ordinary income from dues
exempt from corporate income taxes, but is not a full-fledged 501(c)3
public-benefit nonprofit where any donation is deductible or free from
taxes for the recipient.

Do the folks who want to "leave their home to the community" really want to
see nearly a third of the value extracted in taxes, when they have other
options that could be much more financially efficient in achieving their
goals? It might not affect you as the donor if you don't need the value of
the donation deducted from your own taxes, but the community and your
neighbors who have to take responsibility for the home and pay the taxes
(possibly before they receive the income from selling it) would certainly
appreciate it being conveyed in a way that makes fiscal sense.

Some of the options I've seen in use, being considered, or in development
right now:

* Create a separate public-benefit nonprofit that is primarily pursuing an
exempt purpose linked to receiving donations of and renting/selling homes,
such as providing affordable housing. This should qualify to get a full
501(c)3 nonprofit status, and donations will be both tax deductible to
individuals (and possibly for the estate, ask a lawyer).

This takes a little work and time to set up, and requires an independent
board from your HOA, which has to ensure that it is not characterized
(legally, but also in terms of public perception) as existing solely to
benefit the HOA and its members, or any individuals, as well as complying
with all fair housing laws. But it does give community members a strong
voice in what happens to the home(s) it receives, which can be important in
maintaining the character of the community.

Coho EcoVillage, a Corvallis (OR) cohousing neighborhood, set up such an
organization to buy one of their original homes and run it as a Section 8
rental for members who qualified for the ongoing rent supplement that
provides. The nonprofit entity they created, A Home in Community, is
available for other groups to use as well:
https://www.ahomeincommunity.org/

* Work with (or have someone with a home in the community designate as a
beneficiary in their will or trust) an existing nonprofit organization that
does this kind of work in your area, such as a Community Land Trust (CLT).
They have staff and experience and procedures set up to do this kind of
thing. Over the past decade I've seen local groups of this sort build the
capacity to handle putting a condo in community into deed-restricted
permanent affordability, if that matches the donor's goal; when we first
started exploring this option, some thought that their model of legally
separating the home from the land below it was incompatible with a HOA
where all community members had a shared interest in the land and common
house.

It can take some work to set up a structure in relationship to the
community that ensures that future homeowners/renters are choosing to live
in community, rather than selected by lottery or moving in just because
it's the only or next affordable option on the list, and they'd lose their
place in line otherwise.

* Set up non-taxed gifts of home equity between community members, and sell
the home less expensively (the HOA does not need to be directly involved
for this).

This is something I've been researching recently in connection with the
sale of a home in a community at below-market prices by seller and buyer
who both want to keep their homes affordable for the long term, but aren't
ready to directly donate/sell to a CLT or similar group.

You may be as surprised as I was to discover that gifts of up to $14
million between any individuals are not subject to income tax for either
party! (this was originally a much lower limit well below home prices, but
it has been significantly expanded over the last two decades).

Definitely consult a tax professional, but this appears to be a tool that
can make it possible for parties to transfer homes in community in cases
where the seller would, if selling at market prices, be taxed significantly
on capital gains that exceed the standard homeowner exemptions.

We are looking at extending the Squirrel Fund, a local innovation
originally created to provide a "crowdfunded reverse mortgage" to help a
fixed-income elder afford to stay in our community, to support others who
want to use this option as well. Read more of the history at the Alliance's
blog post about the fund here:
https://cohousingalliance.org/community-founders-forging-new-paths-for-affordability/

* Partner with the National Cohousing Alliance (NCA, formerly Coho/US) and
their in-development Legacy program that can receive home donations, as an
established 501(c)3 public-benefit nonprofit.

I'm serving on NCA's recently-revived affordability-in-cohousing committee
that is supporting the Development team in building this capacity, and we
definitely could benefit from having some specific examples of
potentially-donated homes to run through the model and build the capacity
for this, and technical assistance in doing so.

Of course, the elephant in the room is: what happens next? Who gets input
on how the home is resold or rented, maintained and participating in the
community? This is what we need some solid examples of success with so
others can see this as an opportunity, rather than a potential threat.

We're also looking at other models communities have used to create and
maintain affordability, and hope to catalog (with the Cohousing Research
Network), update and republish some of what's been shared about this, with
the goal of making it easier for more communities to plan around this from
the get-go, and to replicate the work of others rather than reinventing the
wheel each time.

We look forward to continuing this conversation via NCA workshops (formerly
known as The Cohousing Institute) and at the upcoming national summit in
Denver this October, and perhaps with regular conversations on related
topics led by regional cohousing coalitions, sharing different strategies
and surfacing the key issues and concerns.

While I understand that the initial question that started this thread isn't
necessarily about creating and preserving affordable housing options in
community, I'm sharing all this here because I feel like community members
willing to let go of such a valuable thing as their home is such a rare,
powerful, and generous opportunity that we need to all work together to
figure out how to make the most of it.

Raines
  Back home at Berkeley (CA) Cohousing, greatly appreciating the
comprehensive neighbor support that came together in no time at all for a
family medical emergency (all good now) while I was in Houston at the grand
opening of Texas's first cohousing neighborhood, East End Commons, this
past weekend.