From: Everett, WA
Dear TaxMama,
Does our home owner association ever have to pay taxes on
the money that is collected from the owners as dues? The attorney at the
first association meeting said it is all non-profit.
Ijust want to make sure.
Thank you in advance for your helpful information.
Jody
Hi Jody
What a good question!
Your association attorney is right...sort-of.
Actually, there is a special tax return just for homeowner's associations.
In general, they do not pay taxes, because they are not designed to show a
profit. Any money not spent in the current year, is supposed to be earmarked
for specific funds for improvements or repairs.
However, they do pay taxes on unrelated income, like interest, dividends
or investment income earned on the savings they are holding until the roofing
or paving or whatever work needs to be paid.
They also need to pay taxes on moneys from non- members, or money from members
for the rental of facilities, or other business-type income.
You can see a copy of that special tax return, the Form
1120-H
Read the instructions. You'll find they are quite illuminating.
And, yes, do get involved in the association. It's not only educational,
but you'll also be there to ward off any silly rules someone might decide to
impose on your all.
Enjoy your new home.
Best wishes,
Eva Rosenberg, MBA, EA
