1120H

[brendastapp]

Hi,  I have a homeowners association that has a dedicated deferred maintenance reserve account.  The interest earned on that money market account  is credited to the reserve balance.  Is this considered exampt function income?  Is is strictly used for major renovations.

[SabrinaD2]

• No interest earned on a reserve account is generally not considered exempt function income for homeowners associations. Exempt function income typically includes membership dues, fees, or assessments received from residential owner-members
  • Interest income, even if credited to the reserve balance, is usually classified as non-exempt function income and is taxable
  • You can read more about this on the IRS website and Association Reserves.
• Yes, the reserve account is normally designated for major renovations, repairs, or emergencies. This means the funds are exclusively set aside to cover significant projects that maintain or improve the community's infrastructure and facilities
  • However, reserve funds can have other uses if approved by the homeowners association members. For example, reserve funds might be used for purposes other than major renovations, repairs, or emergencies if the community votes to allow it
  • Additionally, reserve fund requirements for homeowners associations (HOAs) can vary by state.
  • For more details, you can visit RealManage and Association Taxes.

Reach back out with your state information if additional assistance is needed.