A homeowner’s association is a non-profit organization that governs property in a neighborhood. They work to improve a community by sharing resources, seeking community support, and working with government entities on zoning and park development.
These organizations can be found in single-family homes, condominiums, and townhouses. Depending on the type of property, an HOA property may have different rules and regulations. Understanding what these means for you can help make your home buying decision easier.
Amenities
HOA property owners enjoy access to a variety of amenities, including parks, recreation centers, pools and clubhouses. These amenities can help residents relax, bond with their neighbors and improve their overall well-being.
Amenities can also help increase a community’s value. Homes in a neighborhood that’s managed well can increase their resale prices by a few percentage points, according to some studies.
Those amenities can also make a community more unified, which can be appealing to future home buyers. Many HOAs offer amenities to attract young families with children, including indoor and outdoor play areas, educational entertainment centers, and fitness centers.
Amenities also save members time and money compared to driving to nearby places that require payment for public use. However, some HOAs’ governing documents prohibit non-members from renting amenities. This can cause budget shortfalls and even membership litigation. Therefore, it’s important to communicate these rules to HOA members and obtain their input before making any changes.
Maintenance
The maintenance costs associated with HOA property vary according to the type of development. For instance, a condominium development with a large common clubhouse, extensive landscaping and numerous fitness rooms will require more maintenance expenses than a single-family home development with fewer amenities.
As a homeowner, you can help the HOA keep its property in good condition by observing exteriors and reporting any problems you see. You can also request that the HOA conduct preventive checks and repairs on common areas.
Usually, a portion of your monthly HOA fees are set aside in a reserve fund to cover planned renovations and emergencies. However, if this fund falls short of what is needed for major repairs and improvements, the association may levy special assessments to cover the cost.
Taxes
When you buy a home or condo in an HOA property, you agree to abide by a governing body that sets rules and guidelines for your community. Those rules often include taxes.
Taxes are one of the most stressful aspects of homeownership, especially when they come around every year. This is why it’s so important to be prepared for the tax season and make sure your financial documents are in order.
A homeowners association that elects to file Form 1120-H benefits from special rules designed to help membership organizations. Most of the income generated from membership dues, assessments, and late fees is exempt.
Non-exempt income, which includes investment and rental income, resort fees, vending, and guest fees, is taxable. A $100 statutory deduction is allowed on this income, and the profit is subject to a 30% rate.
Some HOAs may also be able to avoid filing Form 1120-H by electing to file under section 528. In this case, the HOA must meet two requirements: 60% of its income comes from membership dues, fees, or interest; and 90% or more of these funds are used toward maintenance or improvement.
Rules and Regulations
If you’re buying a home in a community that uses an HOA, it’s essential to familiarize yourself with the rules and regulations. These can affect your enjoyment of your property, as well as how much you pay for the HOA fees.
Typically, the rules associated with HOA property center around appearance and maintenance standards. This helps prevent weed-filled lawns, overgrown landscaping and other visual nuisances that can detract from real estate property values.
Additionally, HOAs often enforce rules on noise levels, including warnings and fines for residents who make too much noise. This can include parties that are too loud or those who are not respectful of other people’s personal space.
Typically, an HOA’s rules and regulations are outlined in a document called the CC&Rs. These governing documents are legally binding on both homeowners and board members. They must be approved and voted on before they become official.
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