• Potential Federal Tax Trap: Condominium and Homeowner Associations
  • September 19, 2013 | Authors: Gene R. Abercrombie; Stephen A. Roepke
  • Law Firms: Eastman & Smith Ltd. - Toledo Office ; Eastman & Smith Ltd. - Findlay Office
  • The IRS recently reiterated its longstanding position that when a condominium or homeowner association’s collected assessments exceed its operating expenses, the difference is taxable income. Associations that have formally chosen to pursue an exemption under (a) IRS Code 501(c)(4) - general public benefit exemption; (b) IRS Code 501(c)(7) - recreational facility exemption or (c) IRS Code 528 as a “qualified homeowner’s association” agreeing to annually file an 1120H federal income tax return and pay a 30% tax rate on their non-assessment receipts are exempt from this taxation rule. This issue has been a frequent subject of revenue rulings addressing situations when an association must recognize taxable income.