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Wednesday, October 28, 2020

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Subject: HOA budget question
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10/07/2020 11:41 AM  
Our HOA will have a balance of 100% of operating expenses and 70% of our reserves at year end 2020. Is there any reason that our board would not be able to transfer a portion of our operating budget to increase our reserves from 70% to 95%. Assume that our planned 2021 annual operating expenses are less than our 2021 annual dues and that there is no change in dues for next year.
(South Carolina)


10/07/2020 1:44 PM  

If your budget is properly financing your Reserves I might carry the operating excess in a General Whatever account so it can easily be gotten to if and when needed. Some get nervous when they see money coming out of the Reserves and in some association there are some hoops that have to be jumped through to do so. That said if it is an ongoing excess, I would put it in Reserves.


10/07/2020 3:02 PM  
A bit more information would be helpful.

Kind of community, number of units, professionally managed, not sure I understand the 100% factor on ops, how long have you been taking in more than expending, is there a reserve study, etc.


10/07/2020 8:29 PM  

There is zero reason not to do that.
See IRS Ruling 70-604.

Here is some more info:

IRS Ruling 70-604 Guide

What Are Excess Operating Funds and Will They Affect Our Nonprofit Status? From HOACPA

What are boards supposed to do with surplus funds? from a FL attorney

Flush with Cash What You Need to Know About Surplus Funding from NJ


10/08/2020 1:41 PM  
Typically a HOA could have 3-4 months of monies that would be spent on a monthly basis for operational expenses in their operating account. Any more should be either put into reserves or returned to the homeowners.
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Forums > Homeowner Association > HOA Discussions > HOA budget question

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