Condo Association Management Blog

If the interest and terms are fair, then go for it. Just have your attorney review or draft it - the cost will be minimal.

We had a similar experience a few years back. Ours is a 12 unit complex and one of the owners advanced monies for tree work. It worked out fine and the Association was able to repay them promptly. A question for you - in what type of account do you hold your reserve funds? since we are a non-profit entity, are we allowed to place in interest-bearing account?

We are an eight unit lake condo and one of our owners paid their dues several years in advance so we could do a major project. The dues were recorded paid for that time period for that unit and the Association did not have to pay back anything. Everyone seemed happy with the process. You need to do the math to be sure your operating budget can remain healthy. We could not afford to have more than one person do that and keep our operating budget healthy.

I don't think that it is a good practice. Borrow the money elsewhere.

I agree with Bruzza. It is a conflict of interest. The Board would then feel obligated to grant "special accommodations" to the loaner in regard to other issues unrelated if so requested.

Elizabeth, 
 
 
 
By all means deposit the reserve funds in an intest-bearing account that is separate from the operating account. If you file the HOA specific federal tax form 1120H, you will only be subject to paying tax on the interest earned. Being a nonprofit corp has no bearing on any of this.

Not to stray too far off subject here, but I do not recommend filing IRS Form 1120H. Instead, use 1120 or 1120A. Why? Using 1120H imputes a flat tax rate of 30% on your taxable income (usually just your HOA's interest income). Filing 1120 (the standard corporate tax return) will subject your first $50,000 of income to a 15% tax rate. Thus, you can cut your tax liability in half by using the "non HOA" form. 
 
Whichever IRS employee designed 1120H should have received a huge bonus. It's a real money maker for the government.

Larry, 
 
 
 
Sorry but I disagree with you. It's apparent you do not totally understand the requirements for each tax form. You cannot say the tax bill is cut in half because the rates are 15% vs 30%. There are other factors to take into consideration. Mainly the fact that by filing form 1120H only non-exempt function income is taxed (interest income) but by filing form 1120 ALL income (including assessments) is taxable. Whereas I do agree that some assns benefit from filing form 1120; most do better by filing form 1120H. 
 
 
 
If your HOA had a net income of $50,000 and interest income of $100; would you still insist that form 1120 is better???