What kinds of tax elections are available?
For federal purposes, an HOA can be taxed as a normal US corporation or can make what is called a “Section 528 election” to be treated as a Homeowners’ Association. The 528 election has a higher tax rate but is preferable for small associations that don’t have much, if any, non-exempt function income If the group has more th an $100 of non-exempt function income and decides to take advantage of lower tax rates by not making the 528 election, there are several other steps that need to be taken and documented in order to minimize taxable income (like opening a separate bank account for reserve funds and documenting in meeting minutes that the group has made certain other elections to comply with applicable IRS Revenue Rulings). In California, taxation depends on whether the HOA is incorporated or not and how much revenue it collects. It also depends on whether exempt status was requested – it is almost always granted for HOA’s and should ALWAYS be requested by incorporated associations t
