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Stephen G.
Stephen G., Sr Income Tax Expert
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Can homeowners associations donate money to a not for profit?

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Can homeowners association's donate money to a not for profit? Assume so. Are their any tax ramifications?

Stephen E. Grizey :

Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything you don't understand.


 

Stephen E. Grizey :

If the Homeowner's Association by-laws permit such a donation yes; If the Homeowner's Association files Form 1120-H, there is no tax deduction for charitable contributions; If the Homeowner's Association files Form 1120, then it would be subject to the same income limitations as any other corporation in terms of the amount that may be deductible against in determining taxable income.


 

Stephen E. Grizey :

In the case of the Form 1120H, the only deductions that are allowed are those that are directly connected with the income subject to tax; since most of the income (member's dues, etc. are exempt from taxation, expenditures related to the property maintenance, association administration, etc. are not deductible, nor would charitable contributions be deductible.


 

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Stephen E. Grizey :

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Customer: replied 4 years ago.

Couple more questions.


 


Our HOA is in the State of GA (not sure if that matter). We are very strong financially......Approx $32k in our HOA account with approx. $10k in annual expenditures. Our secretary/treasurer is in fear we could lose our tax exempt status by donating money to a not for profit organization? is that possible? Any laws governing this kind gesture we'd like to make?


First of all, what are the details of what kind of a "donation" you are talking about?
I don't think you have to worry about losing your tax exempt status, (there is no tax deduction involved if you are filing an 1120H), but generally, this is not a good policy as I doubt it is permitted under your by-laws. Homeowners expect their fees to be used in connection with the operation of the association, not for some other purpose that the Trustees or Board wants to use it for.

If I was your CPA, advising you I would say not to do it. If certain members want to make a combined donation to a specific not-for-profit, you should have them wrtie their own checks to the organization and send them all along with a note to the orgainization that simply says you made a collection for a contribution to them & enclosed please find the individual contributions.

Two advantages to this method: 1) Each individual member would be entitiled to a tax deduction for their contribution & 2) It keeps you're Homeowners Association out of the picture, which eliminates any potential issues down the road if anyone were to object to what you have done.

So basically, I agree with your Treasurer, but for a different reason. The IRS isn't going to get involved in something like that, but you have more of a potential problem with any individual homeowner that either objects to that or gets disgreunteled over something else & uses that donation as a way to cause trouble.

It's like a family where everything is OK 99% of the time & then something happens which results in a problem where none should exist.