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The Difference in Nonprofit vs. Tax-Exempt for Community Associations


The word “nonprofit” is commonly confused with “tax exempt” status in many condominium and homeowner associations.  Board members often think that their association is classified as a 501(c), which is a tax-exempt group.  Nonprofits and tax-exempt groups are different concepts that your Board members need to understand.

 

It’s easier to distinguish the two when you know the definition.  While it appears that tax-exempt and nonprofits are closely related, it is a completely different process by different government agencies.

 

  • Nonprofit status refers to incorporation status under state law, which simply means that there is no intent for profit.  In Tennessee, Code § 48-51-101 classifies condo and homeowner associations as nonprofit corporations.
  • Tax-exempt status refers to a federal income tax exemption by the Internal Revenue. Section 501(c) of the United States Internal Revenue Code specifies types of tax-exempt nonprofit organizations, such as charitable, educational, scientific, etc.

 

Community associations are not in the tax-exempt classification. Think about  tax deductions.  Donations to tax-exempt organizations are tax deductible on your income taxes, i.e., United Way, Red Cross, cancer research, etc.  Assessments paid to an association are not tax deductible because HOAs are not classified as tax-exempt.

 

Bottom line: While condo and homeowner associations are nonprofit entities, they are not tax-exempt.  It’s important for your Board members to be familiar with the difference between nonprofit and tax-exempt.

 

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Wise Property Solutions is a property management company serving East Tennessee with offices in Knoxville, TN and the Tri-Cities, TN-VA. Specializing in Condominium Association Management, Home Owners Association Management, HOA Management and Gated Community Association Management.

 

 

 

Tri-Cities, TN-VA: 423-926-7373

 

 

 

 

Knoxville, TN: 865-643-8989

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