Homeowner associations are required to pay federal and state income tax only if they generate income from sources other than the collection of assessments and fees from the owners, and then only if the income from these other sources, offset by the expenses associated with generating it, exceeds $100. The only non-assessment income most associations generate is interest on association funds. Federal and state income tax is owed on this income to the extent it exceeds $100 per year, but most associations avoid paying tax by carrying forward any potentially taxable income by applying it to the next year’s budget.

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