Not for profit homeowner association reserve funds

Not a very good treasurer.

You will not loose your not-for-profit status. But you will need to report the interest earned to the IRS along with all your other financials when you file at the end of the year.

Plus if you file form 1120H for the HOA you get an automatic deduction of $100.00 off of any interest earned.

Marie, many people confuse what it means to be non-profit/not for profit and/or an exempt organization for HOA purposes. To further confuse the issue, you can have one designation for state purposes and another for federal. Does your HOA file a Form 1120, Form 1120-H or Form 990 for Federal tax purposes? This will have a bearing on how interest earned may be taxed.

Generally speaking,
an HOA that files a Form 990 qualifies as a non-profit organization for Federal tax purposes(very few HOAs actually qualify),
an HOA that files a Form 1120-H is an exempt organization for Federal tax purposes (must meet certain guidelines, but "exempt function" income is not taxable),
an HOA that files a Form 1120 is neither a non-profit nor exempt organization for Federal tax purposes.

In any case, earning interest generally does NOT disqualify an entity from being a non-profit organization, if that is indeed how your HOA is established.

I have found that Porter & Company CPAs website is an excellent resource for general questions regarding HOA accounting and tax issues (http://www.porterandcompany.com). They have some excellent articles that are relavent and timely. I am a CPA and a former Board member of my community's HOA, however, I do not specialize in HOA taxes and thus leave those issues to the experts.

You will see a number of different opinions on any accounting or tax issue on the message boards. You will notice that I use the word "generally" liberally in my response. It is the CPA dictionary they give us in college. As EVERY case involves a different set of facts and circumstances, my recommendation is always to rely on your audit and/or tax services firm for the final say on such issues.

That being said, the HOA for my community does have its reserve funds in an interest bearing account. While it does not earn a stellar interest rate (what financial institution does these days?), anything is better than zero, right?!?

ML5,

I would like to make a few comments on the following statement you made(mostly for clarification, but to also correct your error concerning tax Form 1120) :

"Generally speaking,
an HOA that files a Form 990 qualifies as a non-profit organization for Federal tax purposes(very few HOAs actually qualify),
an HOA that files a Form 1120-H is an exempt organization for Federal tax purposes (must meet certain guidelines, but "exempt function" income is not taxable),
an HOA that files a Form 1120 is neither a non-profit nor exempt organization for Federal tax purposes."

The Federal tax Form 990 is used for 501(c) tax-exempt organizations which the IRS classifies as nonprofits.

The Federal tax Form 1120-H is specific to HOAs. Only non-exempt function income, such as earned interest, is taxable. The HOA assessments are classified as exempt function income and therefore not taxable. This, most likely, is the form that the majority of HOAs use.

The Federal tax Form 1120 is for corporations, including nonprofit HOA corps and HOAs that qualify to file the Form 1120H. Large HOAs that have a high volume of non-exempt function income may benefit from filing the Form 1120 as the tax rate may be more beneficial to them. Only an HOA with a 501(c) designation (tax-exempt org) does not qualify to file the tax Form 1120.