Treas. Reg. Sec 1.528-6 Expenditure test.

We are a small HOA, 14 units. We increased our fees to allow a small amount to be placed in a fund for future extensive repairs, including roofs. Exclusive of the increase our projected expenses will be about 82% of our regular fees. The regs say 90% has to make up the total expenditures. Do we have to reduce our fees and reserve fund?

No. The total expenditure includes funds placed into a reserve fund. Actually putting only 18% into reserves is probably too low. Usually suggest approximately 30% depending on what future capital expenditures may be needed.