Reserves are a crucial aspect of all HOAs.
1 – The Internal Revenue Service considers general maintenance items not appropriate use of Reserve funds. For example painting may not qualify as a Reserve item.
2 – Reserves have to be allocated for a specific purpose. Contingency Reserves, General Reserves, Rainy Day Reserves could be deemed inappropriate by the Internal Revenue Service.
3 – Why is the Internal Revenue Service concerned about how an association sets up reserves and spends reserves? An association is a nonprofit corporation and, like any other type of corporate entity, funds not spent in a fiscal year have to be accounted for properly.
4 – Adequately funded reserves increase the overall property values within the association.
5 – Reserve studies, once completed, should be updated every 5 years.
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