PRIA, Government Policy, Made Personal

Summary

Homeowners associations must follow a special federal tax rule. They are treated like tax‑exempt groups for laws that refer to tax‑exempt organizations, but they still pay a tax under this rule on certain income. The tax is 30% of the homeowners association taxable income, or 32% if the group is a timeshare association. A “homeowners association” here means a condo management group, a residential real estate management group, or a timeshare group that is set up to buy, build, run, maintain, and care for shared property. To qualify, at least 60% of the group’s gross income for the year must come from membership dues, fees, or assessments from owners; at least 90% of its spending must go to caring for the shared property (and for timeshares, also to activities for members); it cannot let profits go to private owners except to pay for property or return extra dues; and it must choose to be taxed this way in the manner the IRS requires. “Homeowners association taxable income” means gross income (not including exempt function income) minus directly related deductions, with a $100 specific deduction allowed, no net operating loss deduction under section 172, and no deductions under part VIII of subchapter B. Exempt function income is dues, fees, or assessments from the owners described above.

Title 26, §528

Internal Revenue Code, Source: USLM XML via OLRC

(a)General rule

A homeowners association (as defined in subsection (c)) shall be subject to taxation under this subtitle only to the extent provided in this section. A homeowners association shall be considered an organization exempt from income taxes for the purpose of any law which refers to organizations exempt from income taxes.

(b)Tax imposed

A tax is hereby imposed for each taxable year on the homeowners association taxable income of every homeowners association. Such tax shall be equal to 30 percent of the homeowners association taxable income (32 percent of such income in the case of a timeshare association).

(c)Homeowners association defined

For purposes of this section

(1) Homeowners association

(2)Condominium management association

The term “condominium management association” means any organization meeting the requirement of subparagraph (A) of paragraph (1) with respect to a condominium project substantially all of the units of which are used by individuals for residences.

(3)Residential real estate management association

The term “residential real estate management association” means any organization meeting the requirements of subparagraph (A) of paragraph (1) with respect to a subdivision, development, or similar area substantially all the lots or buildings of which may only be used by individuals for residences.

(4)Timeshare association

The term “timeshare association” means any organization (other than a condominium management association) meeting the requirement of subparagraph (A) of paragraph (1) if any member thereof holds a timeshare right to use, or a timeshare ownership interest in, real property constituting association property.

(5)Association property

The term “association property” means—

(A)property held by the organization,

(B)property commonly held by the members of the organization,

(C)property within the organization privately held by the members of the organization, and

(D)property owned by a governmental unit and used for the benefit of residents of such unit.

In the case of a timeshare association, such term includes property in which the timeshare association, or members of the association, have rights arising out of recorded easements, covenants, or other recorded instruments to use property related to the timeshare project.

(d)Homeowners association taxable income defined

(1)Taxable income defined

For purposes of this section, the homeowners association taxable income of any organization for any taxable year is an amount equal to the excess (if any) of— (A)

(B)the deductions allowed by this chapter which are directly connected with the production of the gross income (excluding exempt function income), computed with the modifications provided in paragraph (2).

(2)Modifications

For purposes of this subsection

(A)

(B)no net operating loss deduction shall be allowed under section 172, and

(C)no deduction shall be allowed under part VIII of subchapter B (relating to special deductions for corporations).

(3)Exempt function income

For purposes of this subsection, the term “exempt function income” means any amount received as membership dues, fees, or assessments from—

(A)owners of condominium housing units in the case of a condominium management association,

(B)owners of real property in the case of a residential real estate management association, or

(C)owners of timeshare rights to use, or timeshare ownership interests in, real property in the case of a timeshare association.

Notes & Related Subsidiaries

Editorial Notes

Amendments

1997—Subsec. (b). Pub. L. 105–34, § 966(d), which directed amendment of subsec. (b) by inserting before the period “(32 percent of such income in the case of a timeshare association)”, was executed by making the insertion before the period at end to reflect the probable intent of Congress. Subsec. (c)(1). Pub. L. 105–34, § 966(a)(1)(A), substituted “, a residential real estate management association, or a timeshare association” for “or a residential real estate management association” in introductory provisions. Subsec. (c)(1)(B)(iii). Pub. L. 105–34, § 966(a)(1)(B), added cl. (iii). Subsec. (c)(1)(C). Pub. L. 105–34, § 966(a)(1)(C), inserted before comma at end “and, in the case of a timeshare association, for activities provided to or on behalf of members of the association”. Subsec. (c)(4). Pub. L. 105–34, § 966(a)(2), added par. (4). Former par. (4) redesignated (5). Subsec. (c)(5). Pub. L. 105–34, § 966(c), inserted concluding provisions “In the case of a timeshare association, such term includes property in which the timeshare association, or members of the association, have rights arising out of recorded easements, covenants, or other recorded instruments to use property related to the timeshare project.” Pub. L. 105–34, § 966(a)(2), redesignated par. (4) as (5). Subsec. (d)(3)(C). Pub. L. 105–34, § 966(b), added subpar. (C). 1980—Subsec. (b). Pub. L. 96–605 substituted provision that all income of a homeowners association be taxed at a rate of 30 per cent for provision that all income of a homeowners association be taxed a sum computed by multiplying the homeowners association taxable income by the highest rate of tax specified in section 11(b) of this title and struck out provision providing for alternative tax in case of capital gains. 1978—Subsec. (b)(1). Pub. L. 95–600, § 301(b)(7), substituted “Such tax shall be computed by multiplying the homeowners association taxable income by the highest rate of tax specified in section 11(b)” for “Such tax shall consist of a normal tax and a surtax computed as provided in section 11 as though the homeowners association were a corporation and as though the homeowners association taxable income were the taxable income referred to in section 11” and struck out provision that for purposes of this subsection, the surtax exemption provided by section 11(d) not be allowed. Subsec. (b)(2)(B). Pub. L. 95–600, § 403(c)(2), substituted provision related to amount being determined according to section 1201(a) for provision requiring an amount of 30 percent. Subsec. (c)(2). Pub. L. 95–600, § 701(n)(1), substituted “by individuals for residences” for “as residences”.

Statutory Notes and Related Subsidiaries

Effective Date

of 1997 Amendment Pub. L. 105–34, title IX, § 966(e), Aug. 5, 1997, 111 Stat. 895, provided that: “The

Amendments

made by this section [amending this section] shall apply to taxable years beginning after December 31, 1996.”

Effective Date

of 1980 Amendment Pub. L. 96–605, title I, § 105(b), Dec. 28, 1980, 94 Stat. 3523, provided that: “The amendment made by subsection (a) [amending this section] shall apply to taxable years beginning after December 31, 1980.”

Effective Date

of 1978 AmendmentAmendment by section 301(b)(7) of Pub. L. 95–600 applicable to taxable years beginning after Dec. 31, 1978, see section 301(c) of Pub. L. 95–600, set out as a note under section 11 of this title. Pub. L. 95–600, title IV, § 403(d)(3), Nov. 6, 1978, 92 Stat. 2869, provided that: “The

Amendments

made by paragraphs (2), (3), and (4) of subsection (c) [amending this section and section 857 and 904 of this title] shall take effect on the date of the enactment of this Act [Nov. 6, 1978].” Pub. L. 95–600, title VII, § 701(n)(2), Nov. 6, 1978, 92 Stat. 2907, provided that: “The amendment made by paragraph (1) [amending this section] shall apply to taxable years beginning after December 31, 1973.”

Effective Date

Pub. L. 94–455, title XXI, § 2101(e), Oct. 4, 1976, 90 Stat. 1899, provided that: “Except as provided in subsection (f)(2) [set out as a note under section 216 of this title], the

Amendments

made by this section [enacting this section and amending section 216 and 6012 of this title] shall apply to taxable years beginning after December 31, 1973.”

§528 Certain Homeowners Associations

Summary

Title 26, §528

Notes & Related Subsidiaries

Editorial Notes

Amendments

Statutory Notes and Related Subsidiaries

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Citations & Metadata