Homeowners associations (HOAs) usually collect monthly or annual fees from members to help run the community. The collected funds go toward maintaining common areas and upgrading community facilities. Aside from dues, most HOAs have reserve funds. While establishing a reserve fund is not mandatory, doing so can go a long way to help the community remain financially stable in case of unexpected costs. This guide explains everything you need to know about HOA reserve funds.
Understanding HOA Reserve Funds
An HOA reserve fund is a savings account set aside by the HOA to meet unexpected expenses and future upkeep costs that might arise around the HOA community. HOA reserve funds allow the boards to cover emerging expenses without burdening residents with additional costs. It differs from an operating fund, which is a financial account used to finance the daily operational expenses of the HOA. Common uses of HOA reserve funds include roof replacement on common area facilities, major landscaping projects, and construction and renovation projects.
The Importance of HOA Reserve Funds
Adequate HOA reserve funds offer numerous benefits to the board and community members. These include the following:
Fiscal Stability
Well-funded HOA reserves are an indication of a financially stable community. A healthy fiscal status can also help attract new homeowners to the community.
Preparedness
Adequate HOA reserve funds demonstrate a level of preparedness since the board can tackle unexpected expenses without requiring homeowners to pay additional costs. It also helps homeowners feel secure since they do not have to pay extra out-of-pocket.
Peace of Mind
Knowing that your HOA has a healthy reserve account balance can give you peace of mind. It creates a perception that the board is working hard to protect the community’s resources.
How Much Do HOAs Need for Reserve Funds?
The amount needed for HOA reserves depends on various factors, such as the condition of common assets, the number of community amenities, and the HOA’s reserve bookkeeping guidelines. A reserve study, undertaken every 3 to 5 years, can help determine how much your association should set aside as reserve funds. The study assesses the HOA’s finances and assets to help establish a long-term financial plan for repairs and other expenses.
Enlist Professional HOA Accountants
While HOA reserve funds are not taxable, any interest earned on the funds might be taxable. At Abel Accountants, we can help with HOA tax preparation in Atlanta and the surrounding areas. We can also assist your association in determining how much to save as reserve funds and other financial tasks. Contact us today for a preliminary meeting.
