Is private financing allowed
Sorry to bother you again, Dennis! I have researched in all areas I know to research and have come up empty. My question is this:
Is it permissible for a Common Area project that is likely going to be costly to be financed by voluntary private contributions from homeowners in a planned community?
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Rhonda,
Any income to the community other from assessment would be taxable income to the association that cannot be offset by expenses. Nothing prevents anyone from doing what they want with their money. But as a non-profit corporation the association is limited by IRS rules on tax free income. The same way any income received from renting the common areas for non-owner use is taxable income and must be taxed at the applicable rate for the corporation depending on which tax form they use. One is taxed at 15% and the other is taxed at 30%. So, if private contribution raised $100,000 for a project and that project cost $100,000 the association would then get a tax bill of either $15,000, or $30,000 on that income that the community would have to pay.
To decide if this is a good deal for the community will depend on the specifics of the community. If a few wealth homeowners wanted to fund a project to prevent all the community from responsibility for that project. The community would get a $100,000 project but the association would only have to pay for the $15,000 or $30,000 tax bill. Sounds like a good deal but it is not free, and each homeowner would be responsible for their share of the $15,000 or $30,000. The donating owners would also be prevented from any special treatment or privileges based on their donations, and since the association is not a 401.C 3 corporation (most are 401. C. 4’s) the donations would not be tax deductible for the donators.
Dennis