HOA Operation Cost Manual

HOA Manual for California Homeowner Associations
California Department of Real Estate,HOA Operation Cost Manual
Department of Real Estate Budget Review Section

HOA HomeOwner Association Budget Review Section
320 W. 4th Street, Suite 350
Los Angeles, CA 90013-1105
213- 576-6980

Guidelines for HOA Homeowner Association are Items to be budgeted.

Here these HOA Items have been divided into the following five categories:
100 — Fixed Costs (taxes, insurance, etc.)
200 — Operating Costs (utilities, goods and services)
300 — Reserves (for replacement and major maintenance)
400 — Administration (legal, accounting, etc.)
500 — Contingency

Planned Developments unlike Condos
In planned developments, common area taxes are normally assessed on a pro rate basis to the individual dwelling units which make up the development in accordance with Section 2188.5
of the Revenue and Taxation Code. There is no need for the association to budget for property taxes against common areas and facilities in a planned development.

There are reports however, that some county asessors may assess a portion of the value of common area and improvements to the association having title to the property as a means of assuring that the property does not escape a fair assessment. It is, therefore, strongly suggested that an owners HOA association consult with the county assessor on his proposed plan for as sessment of the common areas and facilities before preparing the budget. Common area
lots might also be assessed property taxes under provisions of Mello Roos Special Tax Districts.

Does the HOA Homeowner association holds title to recreational common area. Then it is possible that this property will be separately assessed to the association. Again, this is information that should be obtained from the county assessor before a budget is prepared.

Common area which is owned by owners of individual units as tenants in common must be assessed on a prorated basis to each owner of a unit pursuant to Section 2188.3 of the Revenue and Taxation Code

HOA Corporation Franchise Most associations can qualify for tax exempt status under statelaw if they are able to meet federal re quire ments for treatment as tax exempt organizations under Federal Income Tax Codes. If an ex emp tion is granted by the Franchise Tax Board, an in corporated association will not have to pay the minimum state franchise tax (currently $800.00 per annum). If granted, all associations both incorporated and unincorporated must annually file an informational tax return with the Franchise Tax Board. The annual fee is currently $10.00 and the initial fee is $25. As in the case of the federal law, an association must file a tax return and pay income tax to the state for its nonexempt income.

Each of the first four major categories have been divided into subcategories or into component line item expenses to facilitate the inventory and budget preparation processes.The costs that have been developed for Planned community developments are those customarily associated with low-rise or garden-type Townhouses.

1. Description of Common Area Categories,Description Monthly Costs Equal Costs Variable Costs
2. Variable Assessment Computation -insurance,water,gas,paint,roof,hot water,etc.