Today TaxMama hears from Jan in Washington State who tells us. “I am on the board of a Homeowners Association. We take in about $20,000 and our expenses are $14,000 leaving $6,000 to go for future road maintenance. We also earn about $1,500 in interest. Can we deduct depreciation for our gate and camera (assets) against all the income?”
It’s not clear to me why you want to use depreciation? Your dues are exempt income – non-taxable.
The only thing the association pays tax on is the interest. Depreciation won’t offset the interest.
Please read the instructions to Form 1120-H, in particular, page 3.
(Note: Income from renting space out, or advertising in the newsletter and other non-dues income may be taxable too.)
Yes, the association should be using ‘fund accounting’ principals which sets up specific allocations for various reserves – roofing, road maintenance, exterior painting, etc.
We’ll probably get some feedback from tax professionals who are expert in HOA accounting. So keep reading the comments to today’s TaxQuips for additional notes.
And remember, you can find answers to all kinds of questions about homeowner’s associations and other tax issues, free. Where? Where else? At TaxMama.com[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]
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- IRS Form 1120-H :: U.S. Income Tax Return for Homeowners Associations