MazyW (California)
Posts: 4
Posts: 4
Posted:
our HOA has quite a few parking spaces on the premises. any homeowner that wants to rent a parking space, can. is the income exempt or non-exempt?
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Exempt of Non-Exempt Income - Renting Parking Spaces to Homeowners
Started by MazyW • 11 replies • 135 views
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ElleN (Idaho)
Posts: 1,333
Posts: 1,333
Posted:
I say it is exempt. Discussion at https://overnightaccountant.com/blog/article/what-is-hoa-exempt-function-income and many other sites.
I hope the covenants allow this renting. I say this because "common area" typically means land to which all owners must have reasonable access. If the covenants say the parking lot and spaces are common area, I think you all might be on thin ice.
I hope the covenants allow this renting. I say this because "common area" typically means land to which all owners must have reasonable access. If the covenants say the parking lot and spaces are common area, I think you all might be on thin ice.
MazyW (California)
Posts: 4
Posts: 4
Posted:
Thank you so much for your help! I appreciate you!
MazyW (California)
Posts: 4
Posts: 4
Posted:
FYI: I talked to my CPA today and he said it is for sure non-exempt income.
DeanJ
Posts: 1,786
Posts: 1,786
Posted:
Quote:
Posted By MazyW on 02/26/2025 9:12 PM
FYI: I talked to my CPA today and he said it is for sure non-exempt income.
FYI: I talked to my CPA today and he said it is for sure non-exempt income.
That advice is correct.
MazyW (California)
Posts: 4
Posts: 4
Posted:
I'm SO confused. [email protected] just sent me this message: "Consider the legality of renting parking spaces to homeowners as exempt income; some community rules may define parking areas as common areas."
Then, they sent me another message that said, "Your CPA confirmed that renting parking spaces to homeowners is non-exempt income, and this information is for informational purposes only."
Again, my CPA said it was for sure NON-EXEMPT income. He said: "It is non-exempt, as this is not considered normal operation of the HOA. The frequency of the payment will not impact the classification of the income."
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
FYI: The CCR's say:
"The Board shall have the right to adopt reasonable rules...to the use of the Common Area and any recreational and other facilities situated thereon, by owners and their tenants or guests....with respect to automobile parking, outside storage of boats......and other activities which if not so regulated, might detract from the appearance of the community or offend or caue inconvenience or danger to persons residng or vidsiting therein.
"The directors may provide in such rules for reasonable rental charges to be made with respect to the use of any storage areas or facilities which may exist on the Common Area.."
Is anyone an attorney or has anyone consulted an attorney about this matter?
Thanks much!
Then, they sent me another message that said, "Your CPA confirmed that renting parking spaces to homeowners is non-exempt income, and this information is for informational purposes only."
Again, my CPA said it was for sure NON-EXEMPT income. He said: "It is non-exempt, as this is not considered normal operation of the HOA. The frequency of the payment will not impact the classification of the income."
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
FYI: The CCR's say:
"The Board shall have the right to adopt reasonable rules...to the use of the Common Area and any recreational and other facilities situated thereon, by owners and their tenants or guests....with respect to automobile parking, outside storage of boats......and other activities which if not so regulated, might detract from the appearance of the community or offend or caue inconvenience or danger to persons residng or vidsiting therein.
"The directors may provide in such rules for reasonable rental charges to be made with respect to the use of any storage areas or facilities which may exist on the Common Area.."
Is anyone an attorney or has anyone consulted an attorney about this matter?
Thanks much!
ElleN (Idaho)
Posts: 1,333
Posts: 1,333
Posted:
MazyW, some observations, particularly with regard to working with specialists and professionals like your (HOA's?) CPA:
-- the only way your CPA knows more is if he found case law, IRS rulings or the like specific to this situation.
-- However it is not this CPA's job to teach you everything (including massive legal vocabulary) that he has learned in his many years.
-- IRC 528 applies here. From IRC 528, the black-letter definition of "exempt function income" is this:
Exempt function income
For purposes of this subsection, the term “exempt function income” means any amount received as membership dues, fees, or assessments from—
(A)owners of condominium housing units in the case of a condominium management association,
(B)owners of real property in the case of a residential real estate management association, or
(C)owners of timeshare rights to use, or timeshare ownership interests in, real property in the case of a timeshare association.
-- No one at HOAtalk.com is a tax attorney, HOA attorney or CPA.
-- Thank you for quoting what your covenants say. My opinion remains the same: Classifying this as exempt income is fine.
-- Now to the politics of the situation: Does it make a significant difference to the bottom line of taxes owed? If not, let the CPA have his way, and do so with obsequiousness. If treating this income as non-exempt does make a difference, then plan on hiring someone else to do the HOA's taxes.
-- To say the least: Specialized professionals do not like getting backtalk from laypeople.
-- You should Google on this topic, if only to learn more. See if you can find any site that is as certain as your (HOA's?) CPA on this matter.
-- the only way your CPA knows more is if he found case law, IRS rulings or the like specific to this situation.
-- However it is not this CPA's job to teach you everything (including massive legal vocabulary) that he has learned in his many years.
-- IRC 528 applies here. From IRC 528, the black-letter definition of "exempt function income" is this:
Exempt function income
For purposes of this subsection, the term “exempt function income” means any amount received as membership dues, fees, or assessments from—
(A)owners of condominium housing units in the case of a condominium management association,
(B)owners of real property in the case of a residential real estate management association, or
(C)owners of timeshare rights to use, or timeshare ownership interests in, real property in the case of a timeshare association.
-- No one at HOAtalk.com is a tax attorney, HOA attorney or CPA.
-- Thank you for quoting what your covenants say. My opinion remains the same: Classifying this as exempt income is fine.
-- Now to the politics of the situation: Does it make a significant difference to the bottom line of taxes owed? If not, let the CPA have his way, and do so with obsequiousness. If treating this income as non-exempt does make a difference, then plan on hiring someone else to do the HOA's taxes.
-- To say the least: Specialized professionals do not like getting backtalk from laypeople.
-- You should Google on this topic, if only to learn more. See if you can find any site that is as certain as your (HOA's?) CPA on this matter.
ElleN (Idaho)
Posts: 1,333
Posts: 1,333
Posted:
MazyW, keep in mind this as well:
If the parking fees are considered non-exempt income to the HOA, then some portion of the costs of upkeeping and managing the parking spaces might then be seen as a non-exempt expense. The non-exempt expense can offset the non-expense income.
Food for thought appears here:
https://overnightaccountant.com/blog/article/how-to-determine-your-hoas-1120-h-exempt-function-expense-percentage
If these parking fees were for non-residents of the HOA, I would have a different opinion.
If the parking fees are considered non-exempt income to the HOA, then some portion of the costs of upkeeping and managing the parking spaces might then be seen as a non-exempt expense. The non-exempt expense can offset the non-expense income.
Food for thought appears here:
https://overnightaccountant.com/blog/article/how-to-determine-your-hoas-1120-h-exempt-function-expense-percentage
If these parking fees were for non-residents of the HOA, I would have a different opinion.
TimB4 (Tennessee)
Posts: 21,059
Posts: 21,059
Posted:
Mazy,
Anyone who is an Attorney or a CPA will likely not tell you on this site.
I am neither of those. However, I did look up the IRS code that the article Ellen provided referenced.
According to this article from taxnotes, (which is the same wording but laid out better then § 1.528–9 (scroll to next page to see section (d)) from the IRS website) Per section Sec. 1.528-9 Exempt function income of that code:
(d) Special rule. Notwithstanding paragraphs (a) and (c)(3) of this section, amounts received from members or tenants of residential units owned by members (notwithstanding section 1.528-1(d)) for special use of an association's facilities will be considered exempt function income if:
(1) The amounts paid by the members are not paid more than once in any 12 month period; and
(2) The privilege obtained from the payment of such amounts lasts for the entire 12 month period or portion thereof in which the facility is commonly in use.
Thus, amounts received as the result of payments by members of a yearly fee for use of tennis courts or a swimming pool shall be considered exempt function income. However, amounts received for the use of a building for an evening, weekend, week, etc., shall not be considered exempt function income.
Therefore, I would ask your CPA if he is aware of this special rule and if it applies to your Association and why or why not.
To me, and again I am not a CPA or an attorney, that section of the code is clear -
If the rental of spaces are offered to the entire membership each year and those who choose rent said space for the year for a specific annual amount (not a monthly amount i.e. a yearly contract - which could be paid monthly), those funds would be exempt.
Links have been provided. Read it for yourself and, if you are still not sure, share it with paid professionals for their paid opinion (but show them that specific section).
Anyone who is an Attorney or a CPA will likely not tell you on this site.
I am neither of those. However, I did look up the IRS code that the article Ellen provided referenced.
According to this article from taxnotes, (which is the same wording but laid out better then § 1.528–9 (scroll to next page to see section (d)) from the IRS website) Per section Sec. 1.528-9 Exempt function income of that code:
(d) Special rule. Notwithstanding paragraphs (a) and (c)(3) of this section, amounts received from members or tenants of residential units owned by members (notwithstanding section 1.528-1(d)) for special use of an association's facilities will be considered exempt function income if:
(1) The amounts paid by the members are not paid more than once in any 12 month period; and
(2) The privilege obtained from the payment of such amounts lasts for the entire 12 month period or portion thereof in which the facility is commonly in use.
Thus, amounts received as the result of payments by members of a yearly fee for use of tennis courts or a swimming pool shall be considered exempt function income. However, amounts received for the use of a building for an evening, weekend, week, etc., shall not be considered exempt function income.
Therefore, I would ask your CPA if he is aware of this special rule and if it applies to your Association and why or why not.
To me, and again I am not a CPA or an attorney, that section of the code is clear -
If the rental of spaces are offered to the entire membership each year and those who choose rent said space for the year for a specific annual amount (not a monthly amount i.e. a yearly contract - which could be paid monthly), those funds would be exempt.
Links have been provided. Read it for yourself and, if you are still not sure, share it with paid professionals for their paid opinion (but show them that specific section).
ElleN (Idaho)
Posts: 1,333
Posts: 1,333
Posted:
Quote:
Posted By MazyW on 02/26/2025 10:21 PM
Again, my CPA said it was for sure NON-EXEMPT income. He said: "[blah blah; redacted for focus] The frequency of the payment will not impact the classification of the income."
Again, my CPA said it was for sure NON-EXEMPT income. He said: "[blah blah; redacted for focus] The frequency of the payment will not impact the classification of the income."
"Dues, fees, or assessments that are based on the extent, if any, to which a member avails him or herself of a facility or facilities are not exempt function income."
But if part (a)'s caveat above is what is on the CPA's mind, then he needs to read 26 CFR § 1.528-9 (d)
ElleN (Idaho)
Posts: 1,333
Posts: 1,333
Posted:
Note that what TimB4 cites is from the IRS Code of Federal Regulations. These are regulations the IRS has created to implement statutory law passed by Congress.
TimB4 (Tennessee)
Posts: 21,059
Posts: 21,059
Posted:
Quote:
Posted By MazyW on 02/25/2025 9:37 PM
our HOA has quite a few parking spaces on the premises. any homeowner that wants to rent a parking space, can. is the income exempt or non-exempt?
our HOA has quite a few parking spaces on the premises. any homeowner that wants to rent a parking space, can. is the income exempt or non-exempt?
I guess there are two questions:
1) when you say any homeowner, are the homeowners all members of the Association?
2) Is the space rented on an annual basis or a monthly basis?
If the answer to 1 is yes and the answer to 2 is annual - it would be exempt income.
If the answer to 1 is yes and the answer to 2 is monthly - it would be non-exempt income.
If the answer to 1 is no - it doesn't matter what the answer to 2 is - it would be non-exempt income.
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