Property Improvement Grant

Started by MelodieS • 13 replies • 275 views

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MelodieS
Posts: 6

Posted:

Our Association uses 1120-H for taxes. We got a check from a grant from our city for common area fencing. The city does not give 1099Gs to corporations. Are we required to put the grant in our taxes as nonexempt income?

DeanJ
Posts: 1,789

Posted:

The money is a exchange contribution and the HOA has to pay tax on the funds.

MelodieS
Posts: 6

Posted:

So it's nonexempt and needs adding. Can't we add a deduction since the association had to pay the same amount for the same item?

DouglasK1
Posts: 2,038

Posted:

Quote:

Posted By MelodieS on 02/14/2024 6:56 AM
So it's nonexempt and needs adding. Can't we add a deduction since the association had to pay the same amount for the same item?

I'm not sure exactly what you are trying to say, but it sounds equivalent to "I spent all the money I earned last year so I should be able to deduct it all and not owe any taxes".

Escaped former treasurer and director of a self managed association.

MelodieS
Posts: 6

Posted:

The property improvement grant allowed the HOA to purchase a PVC fence and the grant would reimburse us 50%. The PVC fence cost $18K and we got a check for $9k. Since we have to add the $9K as nonexempt income, I would think $9K we paid could also be deducted as a deduction because we had to pay those funds to get the grant money for the fence. (We only purchased the fence knowing we would be reimbursed. The grant paid for 50% of the fence)

DouglasK1
Posts: 2,038

Posted:

I don't think the fact that it was a matching grant has any bearing on how the income is handled from a tax perspective.

Escaped former treasurer and director of a self managed association.

DeanJ
Posts: 1,789

Posted:

Why would the HOA get to deduct their portion of a fence built on their property?

MelodieS
Posts: 6

Posted:

There were directly related expenses to our HOA from the non exempt income. Isn't the same true if someone rents the clubhouse on HOA property? You can have directly related expenses to the HOA from the non exempt income and are allowed to deduct it.

CathyA3
Posts: 6,286

Posted:

Maybe ask a tax professional? Most of us here aren't.

I agree with DouglasK's take on this. You didn't opt to build a fence in order to get a grant (although I understand a lot of people buy stuff they don't need just because it's on sale). Even if you did, it makes no difference.

You built a fence that ordinarily the membership would have paid for entirely out of assessments. A separate entity provided the HOA with a grant (additional income) that paid half the cost of the fence. So this additional income is probably taxable. You don't get to deduct the portion of the fence's cost paid for out of regular assessments - just as you don't get to deduct any of the assessment money that goes to pay for any other HOA expense, including expenses that you may have received at a reduced cost.

MelodieS
Posts: 6

Posted:

Thanks, Cathy. I appreciate your detail. I wish we could take it all back if this is true. I'll ask a tax professional to be certain.

ElleN
Posts: 4,405

Posted:

Quote:

Posted By MelodieS on 02/14/2024 5:44 AM
Our Association uses 1120-H for taxes. We got a check from a grant from our city for common area fencing. The city does not give 1099Gs to corporations. Are we required to put the grant in our taxes as nonexempt income?

It is clear to me that the answer is yes.

But for further reinforcement, do read the grant agreement and see if it clarifies whether the grant is taxable.

I expect the agreement is either silent or expressly states that it is taxable.

More reinforcement:

https://lanterncredit.com/small-business/grants-taxable-for-businesses

https://www.investopedia.com/are-business-grants-taxable-7814330

https://www.bankrate.com/loans/small-business/are-business-grants-taxable/#how

I am not sure why subsequently, you state regret at taking the grant. After taxes, I would expect the HOA still was better off than if it had not taken the grant.

MelodieS
Posts: 6

Posted:

Thanks, Ellen. It seems the questions now is whether we can take any deductions on this income. Our HOA spent a large amount and had to pay for a survey at the last minute for the city grant. The Board would have done a less expensive fence without using the grant had we seen the entire picture.

ElleN
Posts: 4,405

Posted:

Quote:

Posted By MelodieS on 02/15/2024 7:59 AM
Thanks, Ellen. It seems the questions now is whether we can take any deductions on this income.

The HOA adds up its "repairs & maintenance" and enters the total on Form 1120-H, Deductions section line 10. Line 10 should include the cost of installing the fence. Respectfully, is there a reason you think otherwise?

Quote:

Posted By MelodieS on 02/15/2024 7:59 AM
Our HOA spent a large amount and had to pay for a survey at the last minute for the city grant. The Board would have done a less expensive fence without using the grant had we seen the entire picture.

Got it. Thank you.

DeanJ
Posts: 1,789

Posted:

Quote:

Posted By MelodieS on 02/15/2024 7:59 AM
Thanks, Ellen. It seems the questions now is whether we can take any deductions on this income. Our HOA spent a large amount and had to pay for a survey at the last minute for the city grant. The Board would have done a less expensive fence without using the grant had we seen the entire picture.

Less taxes, the city effectively paid 35% of total cost of a quality project. My HOA would take that deal every dsy of the week.

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