Understanding Deed Restrictions In HOA Communities

Deed restrictions in HOA communities are commonplace, and every homeowner must understand what these are. So, what is a deed restriction anyway? And what can homeowners do about them?

 

What Are Deed Restrictions in HOA Communities?

What is a deed-restricted community? Simply put, a deed-restricted community is a development with certain limitations on what actions residents can make. Deed restrictions, also known as restrictive covenants, dictate what homeowners can and can’t do with their property. These are requirements that homeowners agree to upon moving into the HOA and, thus, must follow.

 

Common Deed Restrictions to Watch Out For

deeds | restrictive covenantNo two homeowners associations are exactly alike, both in terms of structure and in terms of deed restrictions. Every HOA has different restrictions in place.

If you want to know how to find out deed restrictions in your community, simply ask the agent or HOA itself prior to purchasing the property. It is important to familiarize yourself with restrictive covenants so that you know what you are getting into.

While not all associations have the same policies, these are some of the most common deed restrictions in HOA communities today:

 

1. House Color

When it comes to property exteriors, homeowners associations value uniformity. Sticking to a single color palette can elevate a neighborhood’s appeal in an instant. With this type of restrictive covenant, the HOA can prevent clashing colors and vibrant shades.

Color restrictions tend to be specific, too. An HOA can allow one shade of brown but ban a lighter tone of brown. Some even give you lists of permitted or prohibited colors. It can also apply to finishes, such as stone and brick. If your house will have a siding, the HOA may limit your options to a handful of styles.

 

2. Number of Vehicles

Aside from the property itself, deed restrictions can also apply to your vehicles. The association can impose limitations on how many vehicles you can park in the driveway as well as what type. Some HOAs don’t allow you to park motorcycles, boats, and motorhomes. This is in keeping with the same principle of uniformity, which directly affects the curb appeal of the community and its property values.

 

3. Number of Bedrooms

Deed restrictions in HOA communities are not limited to the exterior of your property. Some HOAs have restrictions on the number of bedrooms your house can have. Typically, this restriction is due to septic or sewer capacity. Still, not being allowed to build as many bedrooms as you wish can seriously hamper your plans for your dream house.

 

4. Pet Policies

Pet policies are nothing new to most homeowners associations. A lot of HOAs have restrictions on the breed, size, and the number of pets residents can have, with some HOAs even going as far as banning pets altogether. This is mainly due to the destructive nature of some animals and their propensity to defacate just about anywhere. If you have pets or plan on adopting some, make sure to orient yourself with the association’s pet restrictions.

 

5. Fences and Other Structures

If you intend on building fences, pools, extra garages, sheds, and other structures, there is a good chance you will need to seek approval from your HOA. There are some HOAs that prohibit them altogether, while others have strict regulations on what exactly you can build and how you can build it. For instance, an HOA can limit your options to white picket fences of a certain height in order to maintain consistency.

 

6. Renovation Plans

Living in the same home for years on end can grow dull, and renovations are a great way to change things up. However, if you want to alter or add any plans to your home, you may need to clear it with the HOA as well. If your renovation plans significantly veer away from the general style of the neighborhood, the HOA is likely not going to approve them for the sake of uniformity.

 

7. Cutting Down Trees

Trees add an indescribable beauty to any property or neighborhood. As such, it comes as no surprise that many HOAs prohibit residents from cutting down certain trees. Every association has its own conditions and reasons for restricting the removal of trees. It could stem from a desire to maintain a specific look for the landscape or simply out of concern for the environment.

 

8. Blocking Your Neighbor’s View

A scenic view can raise the value of any property and attract more residents or tenants. To preserve this, many associations forbid building structures that can obstruct a neighbor’s view. So, if you plan on building a three-story house, you must first make sure it does not impede any views. This type of restrictive covenant is more typical in vacation areas with high tourism.

 

9. Use of Property for Business

Home offices are generally acceptable, but a common restriction many associations have is banning the use of residential properties for business. This is usually in an effort to limit the number of people (customers) and vehicles going in and out of your home and, by extension, the neighborhood. Although a lot of HOAs enforce this restrictive covenant, it is prevalent in gated or private communities. Residents value safety, and the increased traffic can lead to a higher crime rate, though not always.

 

How to Fight Deed Restrictions

rules | deed restricted communityHOA communities impose deed restrictions in a general effort to maintain uniformity, boost curb appeal, and raise property values. Sometimes, though, the restrictions can go too far and start to suffocate residents.

It is important to keep in mind that not all deed restrictions are enforceable. Illegal restrictive covenants, for instance, are ineffectual. Vague or outdated deed restrictions may also be deemed unenforceable.

A good example of a restrictive covenant that violates the law has to do with hanging laundry to dry outdoors. Many states have laws protecting homeowners’ right to dry, which means HOAs cannot prohibit members from drying their laundry on a clothesline or rack. If your HOA has a similar restriction, you must check your state laws to see if your association is in violation.

Although changing deed restrictions can come as a challenge, homeowners are not entirely powerless. You can head to your county courthouse to acquire a copy of the restrictive covenant. This usually contains the terms on how to alter the restriction. You can also secure a waiver providing you with permission to go against the restrictive covenant.

 

Do Deed Restrictions Expire?

If changing the restriction or securing a waiver does not pan out, you can always wait for the restrictive covenant to expire, though this is not always a viable option. In general, deed restrictions do not expire. Some restrictions, though, have expiration dates. You can find out whether a restrictive covenant has an expiration date by heading to your county courthouse. The copy of the restriction should indicate whether or not there is an expiration date.

Even if the deed restriction has an expiration date, though, that does not necessarily mean you are in the clear. Your HOA can still vote to extend the restriction’s time limit.

 

Why Deed Restrictions Matter

Deed restrictions in HOA communities can turn off a lot of potential homeowners from moving in. However, you must remember that these restrictions exist for a purpose. As a homeowner, you naturally want your investment to flourish. You cannot sell your house at a profit later on if its property value does not rise. And, believe it or not, HOAs play a key role in increasing property values by maintaining curb appeal and consistency throughout the neighborhood.

 

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Everything You Need To Know About HOA Tax Returns

Contrary to what some may believe, homeowners associations do have to file tax returns. The process can be confusing, especially for a new association with little to no experience in the tax arena. To help you out, here is everything you must know about HOA tax returns.

Are HOA Tax Returns Necessary?

If a homeowners association is created as a non-profit organization in its home state, then it is treated as such on a state level. However, on a federal level, homeowners associations are considered corporations. And, just like corporations, HOAs do need to file tax returns, even if the state lists them as non-profits.

The federal government recognizes a handful of HOAs as non-profit organizations, and you can follow their suit, too. It will require registration and approval with the Internal Revenue Services (IRS). You can do this by filing Form 1024 under the tax code section 501(c)(4). It is important to note, though, that filing this form can cost a lot of money, and not all HOAs obtain the recognition even after going through the long process. Additionally, even HOAs that achieve this recognition must still file a tax return.

Homeowners Association Tax Return Forms

form | hoa tax returnWhen it comes to filing an income tax return for homeowners associations, there are two forms that you can use.

The first is Form 1120, also known as the Corporation Income Tax Return form. This is the form traditional corporations typically use. The second is Form 1120-H, which is a variation of the standard form specifically created for community and homeowners associations.

Many associations prefer filing Form 1120-H over Form 1120 for a number of reasons. The first and foremost reason is due to the arduous process involved with filing Form 1120. This form demands a heavy load of information and a great level of detail.

Because HOAs do not utilize advanced bookkeeping techniques, providing all the required information can be burdensome. Moreover, filing Form 1120 means that any leftover income, even those in your reserves, is taxable for that year.

Keep in mind that these two forms, while in many ways different, are not mutually exclusive. That means you can choose to file either form, provided you have the information required. So, if your association has been filing Form 1120 in the past years, it is easy to make a transition to using Form 1120-H instead.

Filing Form 1120 H

Form 1120-H is a popular choice among many homeowners associations because it poses some tax benefits. For instance, filing this form means your HOA can exclude exempt function income from your gross income. That means you must only pay taxes on non-exempt income.

If your HOA qualifies, if any income directly contributed to the generation of non-exempt income, that income becomes deductible. However, you must produce records to support these deductions. Furthermore, it is much simpler to fill out Form 1120-H, only one-page long, and it involves no estimated tax payments for your HOA treasurer to handle.

Under section 528 of the tax code, a homeowners association can file Form 1120-H if it meets the following requirements:

  • 60% of the association’s annual income is obtained from assessments (membership dues and special assessments), fees, and interest
  • At least 90% of the association’s funds go to maintenance or property additions

You can calculate the amount of your association’s tax by deducting $100 from your non-exempt income. Then, you will subject the rest of your non-exempt income to a flat rate of 30%.

HOA Tax Exemptions: Understanding Exempt and Non-exempt Income

Before you can file your HOA tax returns, it is important to know the difference between the two main types of income: exempt function income and non-exempt function income. This way, you will not use the two interchangeably and risk making a mess on your HOA tax return.

Exempt function income, or simply exempt income, comes from sources such as membership dues, special assessments, fees, and interest on fees. This revenue must come from the association’s members distinctly as owners and not as customers.

Non-exempt income, on the other hand, is the income the association earned as a result of services provided to either community members or the general public. This includes revenue earned from laundry services, vending machines, and renting out clubhouses, pools, and other facilities. Because this income is, by definition, not exempt, it is typically taxable. There may be exceptions, though your association will need to consult with a professional as this varies on a case to case basis.

When to File HOA Tax Returns

tax day | hoa tax returnThe deadline to file your HOA tax returns falls on the 15th day of the 4th month following the conclusion of its tax year.

Though, if your association’s tax year ends on June 30, you must accomplish and file your tax form by the 3rd month’s 15th day following the conclusion of your tax year. If you have a short tax year that ends on any day in June, the IRS will consider your fiscal year ending on June 30.

It is normal to encounter difficulties with filing your HOA tax returns. You may not understand some terms or lack sufficient information to accomplish your tax forms on time. If you feel as though you will not meet the deadline, you can file for an extension using Form 7004. This will give you an extension of six months.

Consider Getting Professional Help

It is important to keep clean and comprehensive books to make tax filing much easier for your association. However, not all HOAs have the necessary experience or expertise to maintain accounting records or navigate the complicated world of tax returns.

Instead of trying to figure things out on your own, it is considerably more beneficial and efficient to hire a professional to help. You can turn to a Certified Public Accountant (CPA) or an HOA management company for such services.

Getting the Lowest Tax for Your HOA

When filing HOA tax returns, homeowners associations will naturally want to use the form that offers the most benefits. Many HOAs prefer filing Form 1120-H over Form 1120, while others find that the latter works better for them. If your HOA does not know which form to file, consider computing your taxes using both forms and then filing the one that results in the lowest tax.

 

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Should You Provide HOA Online Support?

Homeowners often have questions or concerns they would like to raise but have no medium to do so in an instant. This is why some HOAs are considering online support. But, is HOA online support even a good idea?

Is HOA Online Support Necessary?

In an HOA, it is only normal for residents to have questions and issues related to their property or the association at large. While some of these concerns can usually be raised during the annual meeting, not all homeowners get the opportunity to voice out their opinions.

In the past, before the advent of the internet, residents had to send in their concerns via hand-delivered letters. Thanks to technological advancements, more and more HOAs are adopting electronic methods of homeowner communication.

While many associations have websites in place, some have started to consider adding online chat support for homeowners. Although this is a noble and helpful undertaking, an HOA board should first consider whether the act is even worth exploring. So, should the board use HOA online support?

The Benefits of HOA Online Support

benefits | hoa email supportAdopting online HOA customer service has some obvious advantages. For instance, it is a service that adds further value to the experience of homeowners in the community.

Homeowners like knowing that their voices are being heard. In fact, they expect it. That is understandable considering they pay regular HOA dues in exchange for a certain level of service. By adding chat support, your HOA board will definitely see a rise in homeowner satisfaction rates.

Another benefit of using online chat support is convenience. Imagine homeowners being able to reach your HOA board in an instant, with a mode of communication right at their fingertips. Perhaps, in the middle of grocery shopping, they think of an idea that they believe will benefit the community.

All they need to do is take out their smartphone and send a chat message before they forget it. No more taking down notes for later and then not even remembering to tell the board about it.

Finally, adding online chat support encourages homeowners to confidently voice out their issues without fear of getting shot down. A lot of residents keep their opinions to themselves out of fear of confrontation.

Not everyone has the courage to bring up a concern that they feel personally affected by. With online support like chatting, your HOA board can open itself up to a world of new suggestions. After all, it is much easier to hide behind a screen.

The Perils of HOA Online Support

Like most things in life, HOA online support also has its drawbacks. If your HOA board decides to pursue the project using your own resources, it will take some time and effort — not to mention plenty of funds.

First of all, setting up your own chat support via a website requires a sizable budget. Web development does not come cheap. It will also take a while before you can launch the platform, seeing as it needs to undergo quality testing to make sure no bugs slip through the cracks.

Of course, you can always turn to existing mediums like Facebook or Twitter. While these can significantly reduce the amount of money required to set up chat support, you will still need personnel to constantly monitor these sites. Facebook has Messenger Bots you can try out.

That means either sacrificing much of your own time to answer messages or paying someone else to do it. Either way, it will take resources that smaller HOAs might not have.

Furthermore, not all boards want to be within reach all the time. Chat support implies a certain level of availability, and most board members simply do not have the extra time to devote to such a task.

HOA Management Online Support

Since setting up online chat support takes plenty of resources, some associations turn to HOA management companies for help. Most HOA management companies offer homeowner communication services as part of their package. These packages usually only include voice and email support.

There are also companies that offer HOA management online chat support where their own employees answer the questions and concerns of the associations they handle.

It is important to note, though, that not all HOA management companies offer chat services. If your HOA is particularly looking for one that offers it, make sure to ask about the service during the selection process. Perhaps you can even raise the possibility of including it in your package if it is not already there.

Alternatives to Chat Support

While online chat support does have its benefits, it is not the only mode of communication HOA boards can use to stay in touch with community members. Homeowners can always send emails, though the board runs the risk of getting bogged down by piles of emails. Some emails may also go straight to spam (always check your spam folder!).

Voice support is an equally viable option for associations. Homeowners can call in and voice out their concerns over the phone. Unlike chat support, though, voice calls imply a certain window of availability. Board members may only be able to answer calls during their free time. After all, board members are only volunteers and also have full-time jobs outside of the HOA.

As mentioned above, a lot of HOA management companies already offer HOA email support and voice support. Some even have text (SMS) support, which is similar to chat support in many ways. If your association can’t swing online chat support, then SMS is the next best thing.

Does Your HOA Need Chat Support?

chat support | hoa email supportIn the end, only you and your fellow board members can answer this important question. Every HOA is different, therefore, you may not have the same needs as others.

If you think voice and email support are enough, then perhaps it would be a waste to add a third avenue.

The HOA board must consider its options carefully, especially if it intends to pursue HOA online support without help from a management company. When deciding, remember to prioritize the needs of the association. Will this benefit the community or will it only serve as another waste of resources?

 

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