1120-H Homeowners Assn. 90% Expenditure Test?

[zeros]

I do one of these per year and very unfamiliar with it. What is the 90% test expenditure test all about? It says, "Total expenditures made for purposes described in 90% expenditure test." Any help will be appreciated.

[ATSMAN]

Refer to sec. 528

Requirements for Section IRC 528

Residential Test – at least 85% of units must be used as residences. 85% of lots zoned residential for HOA’s
60% Income Test – 60% of gross income must consist of exempt function income (Membership dues)
90% Expenditure Test – 90% of expenses must be qualifying expenses (For the direct benefit of the members)
Administrative expenses cannot exceed 10% or the 90% test fails.

[Uncle Sam]

90% Expenditure Test

This means that 90% of the expenses paid must directly relate to the operation of operating expenses for
the maintaining, improving, repairing the real property for which it was formed, and not pay for
strictly management expenses.

[zeros]

Uncle Same

This means that 90% of the expenses paid must directly relate to the operation of operating expenses for
the maintaining, improving, repairing the real property for which it was formed, and not pay for
strictly management expenses.

The only income they had was a couple of reimbursements and no tax exempt function income. This is for a pool that was non-functioning and needs repair. The function expenditures were $2200, and the income (reimbursments) were $288. Will this be a problem with the 10% issue? Total expenditures are $2699. Not clear on this.

[ATSMAN]

I am not following you. If you say all the expenses were for pool repair, then that is qualifying expense.

How much did they pay for administrative services (salary and benefits of super etc.)

[zeros]

What Happens If They Don't?

This means that 90% of the expenses paid must directly relate to the operation of operating expenses for
the maintaining, improving, repairing the real property for which it was formed, and not pay for
strictly management expenses.

What happens if the 90% expense test is not made?

[Uncle Sam]

90% Expenditure Test

Then you must file an 1120, not an 1120-H

[zeros]

Schedule 1120 Instead of 1120-H

This means that 90% of the expenses paid must directly relate to the operation of operating expenses for
the maintaining, improving, repairing the real property for which it was formed, and not pay for
strictly management expenses.

If they fail to meet the 90% rule, they have to file a "1120" instead of 1120-H. Does that mean that the the Exempt Function Income would now be taxable on the 1120?

[Uncle Sam]

1120-H - 90% test

Yes - just like a regular taxable corporation

[S T]

Preparing several small HOA and/or Condo Associatiions 1120H, I am not following the original post and a some of the other information posted .

Most all of my HOA and Condos, do meet the 90% rule.

Why in this post is the Pool being allocated separately $ 2200 expenditures versus 228 Income , is not the pool part of the overall HOA or Condo Association reporting??? Where did the $$ to pay the $ 2200 expenditures dervie from

Is the post about not being a small HOA/condo and they do not even have an exempt status with the Secretary of State and the State taxing agency. I do believe they have to have an exempt status with the Feds, Secretary of State and also the State. Otherwise with none of that possibly an 1120

If they are filed with your state SOS and Fed/State, it would seem that you could possibly meet the HOA/Condo Assoc Fee Income with a 90% Expenditure for same, through Landscape, Pool, Utitilites, Maintenance, Insurance, etc

Sandy

[Uncle Sam]

Pool

It may be that the pool is an optional benefit where the residents pay a fee for its use, and possibly it's open to outsiders for
a fee - making it a commercial use activity.