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Subject: Developer contribution of clubhouse to HOA
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Author Messages
MichaelC33
(Indiana)

Posts:1


06/20/2021 6:19 PM  
If the developer contributes a clubhouse and other common area land to the HOA, will the developer be entitled to an ordinary and necessary business expense for the fair market value of the building and land (not a charitable contribution - but rather an expense deduction as an ordinary and necessary business expense)
MelissaP1
(Alabama)

Posts:10590


06/20/2021 6:37 PM  
Typically a Developer will build a clubhouse, pool, or other amenity as a "tool" to attract potential buyers. Once the Developer turns over the HOA to the owners the maintenance of these items becomes the HOA's/owners. The reality is that the developer stand point it is cheaper to install an amenity than the long term maintenance costs. Spending 20K on a pool is going to be cheaper than 20 years of upkeep/maintenance.

Former HOA President
JohnC46
(South Carolina)

Posts:11665


06/20/2021 7:44 PM  
Posted By MichaelC33 on 06/20/2021 6:19 PM
If the developer contributes a clubhouse and other common area land to the HOA, will the developer be entitled to an ordinary and necessary business expense for the fair market value of the building and land (not a charitable contribution - but rather an expense deduction as an ordinary and necessary business expense)



Michael
If asking as an HOA Member, I would ask you why do you care how the developer handles the expense? If asking as the developer, you need tax help.
BillH10
(Texas)

Posts:783


06/20/2021 9:01 PM  
Yep, I agree

Your question is NOYB--none of your business, based on the bare facts you have presented.

If you believe there is an intent to defraud the IRS, they have a 1-800 number you can call to register your compaint.
CathyA3
(Ohio)

Posts:2600


06/21/2021 4:24 AM  
Usually the fair market value of the clubhouse and any other amenities and common areas will be included in the price of the homes being sold. The cost of maintaining these also *should* be included in the assessments owners are charged - but these assessments are often kept artificially low while the developer controls the association in order to attract buyers.

The way my employer (a developer/builder) does things: land is acquired and then platted, the necessary legal work is done, roads and infrastructure lines (water, gas, electric) are put in, and the clubhouse is built along with the first phase of homes. Occasionally they'll wait until phase 2 or 3 before putting up the amenities - can depend on cash flow and the eventual size of the planned community.

As for seeing the actual costs associated with all of this, they'll be in the financial records of the developer's business (may be a corporation, may be an individual LLC for each new community). A lot of this is propriety or confidential and not available to the public. The only way I can think of that a member of an HOA would get to see such things would be if there were litigation of some sort and the info disclosed during the course of the case.
CathyA3
(Ohio)

Posts:2600


06/21/2021 4:59 AM  
Posted By CathyA3 on 06/21/2021 4:24 AM
Usually the fair market value of the clubhouse and any other amenities and common areas will be included in the price of the homes being sold. The cost of maintaining these also *should* be included in the assessments owners are charged - but these assessments are often kept artificially low while the developer controls the association in order to attract buyers.

The way my employer (a developer/builder) does things: land is acquired and then platted, the necessary legal work is done, roads and infrastructure lines (water, gas, electric) are put in, and the clubhouse is built along with the first phase of homes. Occasionally they'll wait until phase 2 or 3 before putting up the amenities - can depend on cash flow and the eventual size of the planned community.

As for seeing the actual costs associated with all of this, they'll be in the financial records of the developer's business (may be a corporation, may be an individual LLC for each new community). A lot of this is propriety or confidential and not available to the public. The only way I can think of that a member of an HOA would get to see such things would be if there were litigation of some sort and the info disclosed during the course of the case.



In case this wasn't clear...

The developer doesn't "contribute" a clubhouse or any other amenities. The cost of the land and construction costs for these things (as well as for the homes) are business expenses. The savvy builder/developer will know, to the dollar, how much he is spending so that he can set home prices at a level that allows him to make a profit.

How these expenses are reported in his tax filings or other financial records is a different question, and will be between the developer and the IRS (and shareholders if it's a publicly-traded company). As others have said, not public info.
AugustinD


Posts:1920


06/21/2021 6:31 AM  
Posted By MichaelC33 on 06/20/2021 6:19 PM
If the developer contributes a clubhouse and other common area land to the HOA, will...
I think the correct wording is, "If the covenants and/or sales literature for homes indicate there will be a clubhouse, and the plats, recorded with the county and approved by the city or county land use departments, show that the HOA common area will include a certain section of common area land, will.. "
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