Industry

Homeowners Associations

Financial Clarity for Boards and Communities

A row of townhouses along a tree-lined street

Homeowners associations have financial responsibilities that differ significantly from those of ordinary businesses.

Boards must manage assessments, operating expenses, reserves, capital projects, collections, and tax compliance while remaining accountable to homeowners.

Akato & Associates provides accounting and tax services designed around the financial needs of community associations.

A woman reviewing papers at a laptop, a community pool through the window

HOA Accounting

We help associations account for:

Member assessments
Accounts receivable
Delinquent assessments
Operating funds
Reserve funds
Special assessments
Capital projects
Investment income
Accounts payable
Bank accounts
Financial statements

A community clubhouse with its pool and landscaped grounds

Operating vs. Reserve Funds

Operating funds generally support recurring expenses such as management, landscaping, utilities, insurance, and routine maintenance.

Reserve funds are typically accumulated for major future repairs and replacements.

Clear accounting between these categories helps boards understand what resources are available for routine operations versus long-term capital needs.

A board meeting by the window, a presenter standing beside a screen of budget charts

Budget & Board Reporting

Board members need financial information that is understandable and useful.

Reports may include:

Balance sheet
Income and expense statement
Budget-to-actual comparison
Assessment receivables
Cash balances
Reserve balances
Capital project activity

Three people going over papers at a table, a residential community through the window

HOA Tax Returns: Form 1120-H vs. Form 1120

One of the most important tax decisions for many associations is determining the appropriate federal filing method.

Qualifying homeowners associations may elect to file Form 1120-H under IRC §528.

Alternatively, an association may file Form 1120 under the regular corporate income tax rules.

The two methods can produce different results.

Rather than automatically filing the same form every year, we can evaluate the association's facts and determine which filing approach is appropriate and potentially more advantageous.

Workers renovating a community clubhouse beside its pool

Unusual HOA Transactions

Associations occasionally encounter transactions outside ordinary operations, such as:

Sale of association property
Easements
Condemnation proceeds
Insurance proceeds
Large special assessments
Major capital projects
Investment transactions

These events can create tax consequences requiring analysis beyond routine Form 1120-H preparation.

Board members around a table covered with papers, a residential community through the window

Advisory for Boards

We help boards understand:

Reserve activity
Budget performance
Assessment collections
Cash flow
Capital projects
Financial controls
Tax implications of unusual transactions

What We Help You Manage

Assessments
Reserves
Budgets
Capital Projects
Form 1120-H
Form 1120
Board Reporting
Tax Planning

Frequently Asked Questions

Is an HOA automatically tax-exempt?

No. State nonprofit corporate status does not automatically create federal income tax exemption.

Should our HOA file Form 1120-H or Form 1120?

It depends on the association's income, expenses, qualification requirements, and tax position. The alternatives can be evaluated annually.

What's the difference between operating and reserve funds?

Operating funds generally support recurring annual expenses. Reserve funds are generally accumulated for significant future repairs, replacements, and capital projects.

Are homeowner assessments taxable?

Tax treatment depends on the nature and use of the assessments, the association's filing method, and other facts.

Does interest earned on reserve accounts matter for taxes?

Yes. Interest and other investment income can affect an association's taxable income.

What happens if the association sells property or receives condemnation proceeds?

These transactions can create significant federal and state tax issues and should be evaluated individually rather than treated as routine operating income.

Can you provide reports directly to the board?

Yes. We can structure financial reporting to help boards understand the association's financial position and activity.

Services