Reserve transfer

TinaF4 (new york)
Posts: 22

Posted:

Is it Ok for HOA to not reflect budgeted transfers to the Reserve from operating account on yearly income tax? If so how can someone please explain how that works.

. I do understand a percentage of Operating Income is taken out monthly and put into the Reserves.
But shouldn't Reserve fund still be considered income?

So if our HOA collects $100,00 a year in income and $28,000 goes into the Reserve that year, wouldn't the Income tax Reflect $100,000 in income rather than $72,000 in income?

Thank you

MaxB4
Posts: 3,513

Posted:

It is considered an expense to fund the maintenance and repairs of long term assets of the association, those found in a reserve study.

BillH10 (Texas)
Posts: 1,217

Posted:

Yes

SheliaH (Indiana)
Posts: 6,964

Posted:

Have you asked your association accountant? If you're a nonprofit organization, there shouldn't be any income tax issue, although HOAs have to file tax returns.

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

BillH10 (Texas)
Posts: 1,217

Posted:

Sorry, posted too soon.

Yes, but by the nature of your question it appears you do not understand the income reporting requirements for common interest communities such as HOAs and condominiums.

Please do some research, begin with IRS from 1120-H and its associated materials.

If you still have questions, consult with a CPA or accountant who specializes in HOA accounting--and not the next door neighbor of your uncle's pickle ball partner who is a retired CPA from a Fortune 500 company who offers to help.

DavidG45 (Delaware)
Posts: 994

Posted:

Quote:

Posted By TinaF4 on 07/10/2022 6:10 PM

Is it Ok for HOA to not reflect budgeted transfers to the Reserve from operating account on yearly income tax? If so how can someone please explain how that works.

. I do understand a percentage of Operating Income is taken out monthly and put into the Reserves.
But shouldn't Reserve fund still be considered income?

So if our HOA collects $100,00 a year in income and $28,000 goes into the Reserve that year, wouldn't the Income tax Reflect $100,000 in income rather than $72,000 in income?

Thank you

You refer to “income tax”, but it is unlikely your association’s “income” is going to be taxed, Assuming you file 1120-h, surplus funds are not taxable. Even then, as mentioned already, reserves are an expense, just like any other expense. They effectively a way to prepay future expenses.

TinaF4 (new york)
Posts: 22

Posted:

I do understand the HOA is not taxed. I'm just puzzled as to why they omitted the money that was put into the Reserve account and filed taxes for 2022 with the Reserve money omitted. Our HOA dues collected were roughly $100,000 this year , but HOA claimed there was $72,000 in income.

It was explained to me money going into the Operating cost was like a checking account and spent on bills. money going into the Reserves was compared to a savings account was rarely used and that money was spent on bigger items for community and repairs.

Also, using that analogy if I earn $50,000, put $40,000 into my checking account and $10,000 into a savings account, Don't I still have to report $50,000 as income?

TinaF4 (new york)
Posts: 22

Posted:

I apologize, I meant 2021.

MaxB4
Posts: 3,513

Posted:

Quote:

Posted By DavidG45 on 07/10/2022 6:49 PM

Posted By TinaF4 on 07/10/2022 6:10 PM

Is it Ok for HOA to not reflect budgeted transfers to the Reserve from operating account on yearly income tax? If so how can someone please explain how that works.

. I do understand a percentage of Operating Income is taken out monthly and put into the Reserves.
But shouldn't Reserve fund still be considered income?

So if our HOA collects $100,00 a year in income and $28,000 goes into the Reserve that year, wouldn't the Income tax Reflect $100,000 in income rather than $72,000 in income?

Thank you

You refer to “income tax”, but it is unlikely your association’s “income” is going to be taxed, Assuming you file 1120-h, surplus funds are not taxable. Even then, as mentioned already, reserves are an expense, just like any other expense. They effectively a way to prepay future expenses.

Really?

TinaF4 (new york)
Posts: 22

Posted:

Form 1120

DavidG45 (Delaware)
Posts: 994

Posted:

Quote:

Posted By MaxB4 on 07/10/2022 7:05 PM

Posted By DavidG45 on 07/10/2022 6:49 PM

Posted By TinaF4 on 07/10/2022 6:10 PM

Is it Ok for HOA to not reflect budgeted transfers to the Reserve from operating account on yearly income tax? If so how can someone please explain how that works.

. I do understand a percentage of Operating Income is taken out monthly and put into the Reserves.
But shouldn't Reserve fund still be considered income?

So if our HOA collects $100,00 a year in income and $28,000 goes into the Reserve that year, wouldn't the Income tax Reflect $100,000 in income rather than $72,000 in income?

Thank you

You refer to “income tax”, but it is unlikely your association’s “income” is going to be taxed, Assuming you file 1120-h, surplus funds are not taxable. Even then, as mentioned already, reserves are an expense, just like any other expense. They effectively a way to prepay future expenses.

Really?

Yes.

DavidG45 (Delaware)
Posts: 994

Posted:

Quote:

Posted By MaxB4 on 07/10/2022 7:05 PM

Posted By DavidG45 on 07/10/2022 6:49 PM

Posted By TinaF4 on 07/10/2022 6:10 PM

Is it Ok for HOA to not reflect budgeted transfers to the Reserve from operating account on yearly income tax? If so how can someone please explain how that works.

. I do understand a percentage of Operating Income is taken out monthly and put into the Reserves.
But shouldn't Reserve fund still be considered income?

So if our HOA collects $100,00 a year in income and $28,000 goes into the Reserve that year, wouldn't the Income tax Reflect $100,000 in income rather than $72,000 in income?

Thank you

You refer to “income tax”, but it is unlikely your association’s “income” is going to be taxed, Assuming you file 1120-h, surplus funds are not taxable. Even then, as mentioned already, reserves are an expense, just like any other expense. They effectively a way to prepay future expenses.

Really?

Yes.

DavidG45 (Delaware)
Posts: 994

Posted:

Quote:

Posted By TinaF4 on 07/10/2022 7:11 PM
Form 1120

Not 1120-H?

TinaF4 (new york)
Posts: 22

Posted:

It's form 1120.

DavidG45 (Delaware)
Posts: 994

Posted:

Quote:

Posted By TinaF4 on 07/10/2022 7:14 PM

It's form 1120.

Well that is more complicated. Still, I am pretty sure contrition to your reserves is an expense.