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Subject: Can HOA refund homeowners for improvements
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Author Messages
JaniceM7
(Maryland)

Posts:3


09/29/2020 12:03 PM  
HOA wants to refund personal property owners for improvements to make community look nice. If the total goes above IRS threshold of 10% of budget for the taxes I would think they could be in jeopardy of having to pay taxes on all assessments collected. Don't want to discuss why they are doing this, just if this could get messy at tax time.
MelissaP1
(Alabama)

Posts:9648


09/29/2020 12:10 PM  
Why not have a special assessment? Confused.

Former HOA President
GenoS
(Florida)

Posts:4130


09/29/2020 12:20 PM  
Posted By JaniceM7 on 09/29/2020 12:03 PM
... Don't want to discuss why they are doing this...

OK but that's the sort of thing people discuss around here all the time.


Posted By JaniceM7 on 09/29/2020 12:03 PM
And this sort of thing is not. You're better off talking to an accountant or a tax professional.
JaniceM7
(Maryland)

Posts:3


09/29/2020 12:28 PM  
IM not in favor of it, but the board did vote to do this. They could just as easily do a dues refund and I think that would not get them in trouble with IRS.
SheliaH
(Indiana)

Posts:3512


09/29/2020 4:02 PM  
Why would they want to issue a refund? If the improvements came in under budget, that's great, but doesn't warrant a refund. If you have a reserve fund, put the extra money in there or hold assessments at the current level for next year. Or put the money towards something like a contingency fund that could pay for certain unexpected spikes in the operating budget.

If you issue refunds, homeowners would probably have to report it to the IRS and pay taxes.
JohnC46
(South Carolina)

Posts:10014


09/30/2020 9:21 AM  
Posted By SheliaH on 09/29/2020 4:02 PM
Why would they want to issue a refund? If the improvements came in under budget, that's great, but doesn't warrant a refund. If you have a reserve fund, put the extra money in there or hold assessments at the current level for next year. Or put the money towards something like a contingency fund that could pay for certain unexpected spikes in the operating budget.

If you issue refunds, homeowners would probably have to report it to the IRS and pay taxes.



I agree. Do not refund.
CathyA3
(Ohio)

Posts:1315


09/30/2020 11:37 AM  
I second the recommendation to talk to a tax professional, which most of us here are not. The treatment of assessment dollars differs depending on whether the association files Form 1120 or 1120-H - most HOAs file 1120-H since assessments used to maintain the property are considered "exempt function income" and not taxable.

Also, depending on the source of the excess funds, the refund may be necessary. Special assessments can only be used for the stated purpose of the assessment. This isn't true for regular assessments, in which case the board has options. In this case it makes little sense to return the money, unless the dollar amount is significant, since it's possible that next year's actual expenses may exceed the budgeted amount.
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Forums > Homeowner Association > HOA Discussions > Can HOA refund homeowners for improvements



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