No matter the financial status, all homeowners associations can benefit from additional funds donated by their homeowners. Some HOAs may need it to finish an essential capital project while others simply want to add more amenities to their community. In any case, is it right to accept HOA donations? Here’s what you need to know.
In this article:
HOA Donations: What Constitutes as Donations to the HOA?
Ideally, in an HOA, all expenses should be covered by association dues. The total amount collected from homeowners is used to pay for operating expenses and capital improvement projects, as well as to shore up reserves or make contributions to investments. However, there are cases when associations don’t have enough money or resources for a certain project.
Some homeowners may offer to step in and make donations to the association. It can be through monetary donations or voluntary labor. There is nothing that prevents homeowners from donating to their associations. However, donating to HOAs is a complex matter. Even though it is not illegal or inappropriate to accept HOA donations, associations must tread carefully to avoid potential ramifications.
Should the HOA Accept Donations?
Before you accept HOA donations, here are some points to consider. First, HOAs are non-profit organizations. Accepting donations from homeowners could have consequences on the non-profit status of your association. There may be tax implications that you are not aware of. As such, it’s important to consult your HOA attorney before accepting donations from homeowners.
Voluntary Labor as HOA Donations
Aside from money, donations can also be made in the form of voluntary labor. It is reasonable for homeowners who want to donate their time and services to the association. However, before accepting voluntary labor, check if homeowners are supposed licensed or insured.
If they are and they are somehow injured while providing labor, the HOA may be faced with liabilities. Before accepting voluntary labor, it’s important to consult your insurance provider. Make sure that you have adequate insurance coverage for voluntary labor. If not, it’s best to not accept voluntary labor from these individuals.
HOA Donations Through Fundraisers
HOAs can decide to host fundraisers as a way of raising money. Aside from the potential tax implications, though, here are other potential issues to think about.
- Outsiders: If you accept donations from individuals who are not part of the association, will they receive any privileges? If you entertain outsiders and they are injured, your insurance may not cover the resulting expenses. Letting outsiders in can also pose security risks for the homeowners.
- Alcohol: Serving alcohol during fundraisers can also lead to liabilities for the HOA. If there are injuries or damages that take place, you may not have the insurance coverage to cover the resulting expenses.
- Additional Expenses: Planning a fundraiser can be expensive. It requires a lot of time, money, and resources. There’s also no guarantee that homeowners or guests will show up and make sizable donations. As such, you may end up spending more than you receive in HOA donations.
- Perception: Raising funds for HOA expenses may also send a message to potential homebuyers. If they see that the HOA cannot cover its expenses, they may think twice about joining your community. Thus, accepting donations may reflect badly on your association.
- Expectations: Associations should inform homeowners that participation in fundraisers is voluntary. They do not have to attend or donate money. And those that do will not receive any special treatment or status. The HOA board should also be transparent about how, when, and where the monetary donations will be spent.
An Exception to Fundraisers
If you belong to a large HOA, though, fundraisers may be more feasible. For instance, golf course communities already have amenities or facilities that are open to visitors. They also most likely have a license to serve alcohol on their premises. If your community has insurance to cover potential liabilities, you can be more confident about hosting fundraisers. Otherwise, it may be better for homeowners to host their own fundraisers and just donate the profits to the HOA.
HOA Donations and Assessment Dues
HOA donations are entirely separate from assessment dues. Thus, homeowners cannot substitute voluntary labor for their HOA fees. They are still required to settle their dues on time. Likewise, the association cannot use assessment dues for non-HOA matters. Money collected from homeowners should only be spent on running the HOA. The board cannot use it to donate to charitable organizations. If you want to make charitable donations, the HOA can collect additional funds for that.
Are Donations to the HOA Tax Deductible?
Even though associations are non-profits, they are not charitable organizations. According to the Internal Revenue Service (IRS), tax-exempt status is only given to religious organizations. non-profit schools and hospitals, non-profit charities, educational organizations, non-profit community facilities, and war veterans’ organizations. Thus, HOA donations are not tax-deductible. Homeowners donating to the HOA cannot deduct these on their tax returns.
HOAs as Beneficiaries of Homeowners
Homeowners can donate their assets to the association upon their death. Through estate planning, a homeowner can name the HOA as a beneficiary in their will. HOAs, on the other hand, can allow for such donations.
You can see this in your governing documents — although it may not be explicitly stated. Similar to other HOA donations, the donated assets will also be taxable.
The Pros and Cons of HOA Donations
There is no law that prohibits HOAs from accepting donations from their homeowners. Before accepting HOA donations, though, make sure that you are prepared for the possible ramifications. Consult with your HOA management company and/or attorney so that everything is in order. If accepting donations will just lead to liabilities for the HOA, then it may not be worth it in the end. Weigh the pros and cons to see if the outcome will be favorable for your HOA.
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