Reserves or Special Assessment Accounts

Many associations choose to establish reserve funds which are used to set money aside for future capital expenditures such as replacement of association property. Some associations also establish reserve funds which are used to set money aside for non-capital purposed such as painting, insurance deductibles, and contingency funds.

When filing form 1120 the way these funds are treated for tax purposes is an area of significant ambiguity and complexity. Usually associations want these funds to be treated as contributions of capital so that they are excluded from taxable income in the year in which they are contributed. There Earney and Company, L.L.P. can help your organization navigate the complexities of reserve and special assessment compliance.