When it comes to HOA donations, board members should think twice about the implications and considerations before accepting money. It is important to understand that homeowners associations work differently than other organizations, including charitable organizations. Openly accepting donations without setting expectations and standards can be a slippery slope.
What are HOA Donations?
Simply put, HOA donations are financial contributions made to a homeowners association. Donations can come from any source, including homeowners, vendors, and outsiders. They can come in monetary donations, which are more typical, but they can also come in the form of voluntary labor.
Can an HOA Accept Donations?
Donations are not uncommon among organizations. Plenty of organizations are explicitly structured to accept donations to help those in need. However, homeowners associations are not one of them. Because donations are not the norm among HOAs, board members might ask, “Can HOAs take donations?”
Whether or not an HOA can accept donations depends on its governing documents. Board members should read their bylaws and CC&Rs thoroughly to determine whether they are able to accept HOA donations.
That being said, even when the governing documents don’t explicitly state it, an HOA generally has the authority to accept monetary or property donations from someone who willingly gives them. If someone donates money to the HOA, the board should be able to receive it.
Should an HOA Accept Donations? Things to Consider
Donations can help the HOA, and they usually come with no strings attached. However, with how the world works, not everyone donates money, time, or property without expecting anything in return. Donations can even put the HOA at risk of legal culpability. Therefore, board members should be wary of accepting HOA donations in general.
Here are some points to consider before allowing donations to the homeowners association.
Potential Liability
If the governing documents are silent, an HOA generally has the authority to accept donations through money or labor. An HOA can receive donations from homeowners, vendors, or other sources. However, board members should proceed with caution when accepting voluntary labor from those with the proper licenses and insurance.
Board members must do what is best for the association. This includes ensuring the HOA does not land in legal trouble. Everyone providing service or labor to the HOA should be appropriately licensed and insured. Otherwise, the HOA may become liable for an error or injury that would have been prevented if the HOA had paid for the service/labor or gone through the proper bidding process.
Insurance Notification
If the HOA does accept voluntary labor from someone, board members should inform their insurance provider immediately. Board members must let the HOA’s insurance agent know that voluntary labor is happening within the association. This way, the association can clarify whether or not the HOA’s policy covers the labor. If the labor is not covered, it may be unwise to proceed.
Expectations of Special Treatment
While HOA donations should not be reciprocal, there is sometimes an expectation of such when the HOA accepts them. A homeowner may donate money in the guise of wanting to help. However, they may have ulterior motives and hold the donation over the board’s head. They could ultimately ask for something in return, be it immediately or down the road.
Similarly, vendors might donate money but imply that the donation comes with strings. For example, they may want to secure a coveted service contract with the HOA or want to renew an existing one for another few years.
As donations can come with expectations, board members should always be cautious. It is important to make it clear that donations are simply that — donations. There will be no special treatment or returned favors.
Can an HOA Host a Fundraiser?
Donations are not the same as fundraisers, though they indeed share similarities. Fundraisers are a way to collect donations but are usually held as events. As such, people attend with clear expectations.
That said, HOA boards should still clarify that residents are not mandated to attend. Participation and attendance are entirely voluntary. If people do make donations, they will not receive any special treatment.
Additionally, the HOA should clearly define the purpose of the fundraiser. What is the association raising funds for? This way, those who make donations know where their money is going. For the board’s part, it is crucial to ensure that the funds are allocated to the cause or project for which the fundraiser is advertised.
While fundraisers can be a great way to raise extra money, HOAs should always seek legal counsel before organizing one. Legal professionals can inform the board whether the fundraiser has any legal implications for the HOA. It is also important to get advice from a Certified Public Accountant. Fundraisers may impact the HOA’s taxes.
Other Considerations When Hosting Fundraisers
- Inviting Outsiders. Most fundraisers are open to members only. However, if the HOA wishes to invite outsiders, it is essential to define what they will get if they make a donation (if any). Furthermore, the HOA should ensure insurance coverage if an outsider suffers an injury while attending the fundraiser. Keeping the fundraiser confined to a certain area is also crucial so that outsiders don’t wander around the neighborhood.
- Serving Alcohol. It is best not to serve alcohol at fundraisers, especially if the HOA intends to invite outsiders. Again, there are certain legal and insurance consequences should someone get too drunk or injure themselves with alcohol present.
- Budget. Raising money also means spending money. Holding a fundraiser requires a budget. While volunteers can donate their time and assistance, monetary expenses can’t be avoided. As such, the HOA board should determine if the projected donations outweigh the eventual costs.
Are HOA Donations Tax Deductible?
The Internal Revenue Service generally does not qualify homeowners associations as tax-exempt organizations. Therefore, if the HOA does accept donations, those donations would still be taxable. Board members should consult their accountant for the tax implications of receiving donations.
Can an HOA Make Donations?
An HOA can’t use funds collected from homeowners, such as dues and assessments, to make donations. These funds must go toward the community’s common expenses. The HOA also can’t use its reserves to make donations.
However, the HOA can encourage homeowners to make their own donations to charity. The HOA can also organize a charity event to donate collected funds to a charitable organization. However, board members should choose the charity wisely, as some homeowners may not agree with the causes the board supports.
Can HOA Accept Donations: Answered!
A homeowners association can generally accept or make HOA donations. However, several legal and financial considerations must be considered. Board members should refer to the association’s governing documents and seek professional advice before pursuing anything.
Cedar Management Group provides expert HOA management services, including legal assistance, to HOAs and condominiums. Call us today at (877) 252-3327 or email us at help@mycmg.com to get started!
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