Cohousing-L Mailing List: Re: HOA reserves investment plan

[David Mandel (dlmandel]

Raines Cohen wrote:

> David Mandel <dlmandel [at] pacbell.net> wrote on 5/8/01 10:01 AM:
>
> > These are state and federal tax free (thus avoiding the 40%
> >we'd be paying
>
> I thought that HOA's (at least here in California) are generally
> incorporated as a form of nonprofit that is exempt from federal and state
> income taxes... is investment income considered Unrelated Business
> Income, and thus subject to taxation? Clearly, it makes a big difference
> in the investment strategy you pursue.

Yes, income of a type that would be taxable if it belonged to an individual
is taxable to an HOA. The flat rate for an incorporated HOA under IRC 528 is
30%. Add state taxes and it's close to 40%. That makes tax-free bonds
attractive.

>
>
> Raines
>
> (also curious whether any coho groups are also investing reserve or other
> funds in somewhat riskier but higher yield and
> higher-return-to-the-community-at-large investments: in silent second
> mortgages to members (I believe Pleasant Hill Cohousing is planning this)
> to assist with affordability, or in investments in other communities)

These would be considered very risky for an HOA. In the worst case, an
aggrieved individual could sue for breach of fiduciary duty if losses
suffered required additional special assessments.

David


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