Tax Filing

You did get wrong information. What kind of lawyer was this? I would get an expert asap. This situation is not doing your HOA any favors. Is the new owner having to pay dues?

-- HOATalk's rules prohibit recommendations of specific businesses.

-- TimB4 is probably one of the best qualified people who might opine here.

My way crude observations:

-- To apply for an extension requires Form 7004. Form 7004 requires an estimate of the tax owed. Given the capital gain, this is no easy feat for a layperson.

-- I think you need a CPA just to prepare the Form 7004. To locate a CPA, try googling as follows:

"north carolina" "CPA" "HOA"

-- Here's a HOA's recent 1120-H that actually shows a not insignificant capital gain:

https://www.explorethevillage.com/images/members/financials/2017-1120H_tax-return.pdf

-- Note Form 1120-H's deductions section.

-- I am an extreme amateur when it comes to HOA taxes. But after some reading, I am not yet convinced that the manager is correct.

-- To offset the capital gain from the sale of the clubhouse and pool, I think your HOA has to have depreciation and expenses for 2021.

Best way to receive specific recommendations would be to provide an email address. If you don't want to provide your normal email, I suggest creating a new email for this purpose.

I can provide you the name of the CPA who did our audits when I was on the board, but he is located in northern VA. Email me: [email protected]

As NP posted, most likely the first thing a CPA will do (if they will even take on a new client this late in the tax season) is file an extension.

Failing to obtain a CPA, you can look at a tax program for business.

Thanks everyone for their input. I was able to get a CPA in Charlotte to do the return already. No 1099-s was issued as we are a non profit. We don't owe any taxes on the sale.

CPA says since we kept the clubhouse(now private residence) in the community as well as put the sale proceeds in our reserve fund that was underfunded, we do not have to pay any tax. Our HOA attorney agrees. CPA firm is well versed in HOA filings.

DebbieF6, is the CPA filing an 1120-H?

Are the proceeds of the sale being reported anywhere on Form 1120-H (or possibly Form 1120)?

Posting for the archives and to learn something:
... perhaps meaning that the person (call her "Jones") who bought the clubhouse became a member prior to purchase, and this has a huge bearing on the tax implications of this sale?

Yeahbut it's highly unusual for a HOA to have any capital gain. It's not something that CPAs or HOA attorneys deal with on any kind of regular basis.

I see chatter about how, no, one cannot just put the proceeds of a common area real property sale into the reserve fund and have no tax consequences. Quite the opposite.

But I know: It's just chatter, and I am a raw amateur. The OP now has a CPA expert and a HOA attorney expert. I sure would like to know more about how the final Form 1120 or Form 1120-H reads, as it pertains to the sale of the common area.

This is indeed a very unique situation. The "HOA" does not own the property, it's members do. The HOA does not carry the asset on it's Balance Sheet, therefore, how can it be a sale of an asset subject to Capital Gains Tax to the HOA?

Internet searching on this situation was fruitless. HOA accounting can be complicated and confusing and best left to the professionals.

All this is way above my pay grade. All I know is the CPA firm was given all documents required to file the claim as well as the complete story
of the selling of the clubhouse/pool. The CPA firms managing partner completed the return in half a day so, at least to them, this was a cut
and dry HOA filing.

I also didn't find anything that talks to this situation. I find it strange that real property and money can change hands without various taxing agencies getting their share.

I'm not a tax pro, but my understanding is that the HOA (the corporation) does own the common area. This is different from a condo association where the members own an undivided interest in the common elements. The members don't notice anything different in their experience of living in each type of community, but the common areas are titled differently.

https://andysirkin.com/ccr-amendment-replacement/homeowners-associations-hoa-faqs-part-1/

Quote:

Who Owns the Common Area?

Title to common area can be held by the homeowners association or by the owners in percentage shares as “tenants in common”. The decision is made by the developer at the time the governing documents are prepared, and is very difficult to change later. To determine who owns the common area in an association, refer to the CC&Rs. The method of common area ownership has no significant consequences in a properly insured association. Note that in condominium projects, title to at least some common area must be held as tenants in common. The percentage held by each owner does not determine that owner’s usage rights or cost responsibility.

Think got it now. The sell proceeds were put back into the HOA funds. That means that all owners benefitted. The proceeds if had gone into members pockets or maybe the operations budget a different story. That money may show up as profit versus filling in a hole in the reserves budget.

Not sure on the new owner side of things on what taxes and consequences they incurred. The HOA may face some in trade off for losing what most would consider an asset.

Guessing here, but I suspect that it's because, unlike cash and other assets in a bank, the value of real estate fluctuates - it boils down to whatever a buyer and seller agree that it is. I suppose you could assign a "real" value of what the tax assessor says, but that's also an opinion when you get right down to it.

So it would make sense to show real estate on the balance sheet if people could come to some agreement on its actual worth.

I see the value of land (that I presume is common area) listed on some HOAs' balance sheets. As you note, its value is whatever the market will pay at any given moment. But I expect CPAs know that estimates are possible and appropriate.

A for-profit corporation would certainly list the value of land it owns as part of its assets and liabilities, wouldn't it?

The sites I linked above reference an IRS Technical Advice Memorandum 9637007, a.k.a. "TAM 9637007". The latter addresses at least some of my questions. The TAM is addressing a specific real-life COA/HOA situation, without giving the actual name of the HOA/COA. So far I cannot find the full memorandum.

I think one also needs to be careful about speaking of sales of condo unit vs. sales of land where there was (or is) no condo unit. Some land that is sold may be bona fide common area, described in the Plats and Declaration. But units, while perhaps owned by the corporation (or the owners as tenants in common) are not common area, at least not as given in the typical Declaration or Plat. Many COAs ended up buying some units during the Great Recession, perhaps naively insofar as the business, tax, income, nonprofit-corporation-status, yada meaning would be of owning a unit. Now COAs are selling these purchases, and potentially facing tax implications.

HOATalk's archives have next to nothing on the subject of tax treatment. I wonder if CPAs get wishy-washy on this subject. (Especially since it's not like the IRS has time on its hands these days?) I hate to wave my own hands on the subject. I live for the logical answer (though fuzziness does arise sometimes and should be treated, yes, logically).

From https://www.irs.gov/pub/irs-wd/9934013.pdf , when recreational property owned by two condominium associations was sold, following a hurricane disaster that resulted in the owners voting to dissolve the associations which of course includes selling the recreational property:

Under State law, the individual unit owners within the
Associations own an undivided interest in the residential and
recreational acreage based on the percentage of the residential
and recreational acreage owned by that unit owner’s condominium
association.
...
In preparing the residential and recreational properties for
sale, the Associations, Z and Receiver were acting as agents on
behalf of the unit owners and received no benefit from the sales
proceeds. The Associations, Z and Receiver have a duty as agents
to distribute the proceeds collected from the sale of the
recreation and residential properties to the unit owners.

Based upon the facts surrounding the case and the
representations of the Associations, Z and Receiver, we hold that
the receipt of proceeds related to the sale of the residential
and recreational properties is not a taxable event to the
Associations, Z or Receiver.

If your HOA is a corporation, you're already past the time to file for an extension, which is normally around March 15. Your HOA will likely be hit with a penalty. So the sooner your HOA files their return, the penalty will be less.

Absolutely agree.