HOA Board Blog

Question:

What types of reserve funds may a homeowners association maintain within the law. Are these reserves taxable?

Answer:

I am not sure what you man by what types. Typically, there are two reserve types, regular reserves and working capital reserves. Regular reserves usually covers large capital assets of the association like clubhouses, streets, and pools and accumulate over time for when the association needs it. Working capital reserves are for items in your operations like insurance that will get paid once a year. Some associations want to pull out of operations the amount to pay for these items and put it in an interest bearing account for a better return. Depending on the amount of interest, it usually is not taxable.

Parker Finch Management is the HOA community manager for over 50 associations in Arizona.