Georgia CPA Accounting for Homeowners Associations

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Get Mark Bryant CPA Accounting Services Before Making Homeowner Association Capital Expenditures

by Mark Bryant

In Atlanta and across Georgia, Homeowner’s and condominium association taxation is a specialized area of the Internal Revenue Code. These associations, along with a few others, are all what are now being called Common Interest Realty Associations (CIRA). While a basic homeowner’s association return can be relatively simple it is still a good idea to have a basic understanding of CIRA tax law. If not, there are certain beneficial tax treatments that may be missed.

One of the areas that can be used to benefit homeowner’s associations is the use of capital contributions. According to Internal Revenue Code Section 118, “In the case of a corporation, gross income does not include any contribution to the capital of the taxpayer.” The obvious meaning of this section of the IRC is that capital contributions can be excluded from income of the association.

As with most items that have beneficial tax consequences, the Internal Revenue Service requires proof that an item fits the categorization the taxpayer has given the item. There are several things a homeowners’ association can do to ensure the funds qualify as a “capital contribution”. We can review your situation and guide you every step of the way.
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Following is a list of actions the Board of Directors can take to ensure that funds qualify as capital contributions:

1. The purpose of the assessment must be capital in nature. It would need to be shown, typically in the minutes of Board meetings, that the Board approved the capital assessment and expenditures.

2. Members must have advance notice as to the intent of the purpose of the contribution.

3. The money contributed must be accounted for as a capital contribution.

4. The money must be held for that purpose and for no other purpose.

5. The money must be held in separate bank accounts from the operating
(non-capital) monies of the HOA.

6. The money must be spent for the intended purpose.

7. The money must increase the capital account of the members of the HOA.

Funds that qualify as a “capital contribution” are not taxed and can be carried forward to be used for expenditures that are capital in nature.

This list is not an all or nothing list. The more of these things the condo association does, the better. Also, some items on this list are more important than others. Having a separate bank account and proof that the Board approved making capital expenditures and required capital contributions are items that should be present.  To discuss your specific set of details and to have our team review your course of action call Mark Bryant, CPA  404-513-0765

 

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