26 U.S.C. § 528 — Certain homeowners associations

(a) General rule. A “homeowners association,” as subsection (c) defines that term, is taxed under this subtitle only as this section provides. It is treated as an organization exempt from income tax whenever another law refers to organizations exempt from income taxes.

(b) Tax imposed. Each taxable year^*, every homeowners association owes a tax on its homeowners-association taxable income. The tax is 30 percent of that income, or 32 percent for a timeshare association.

(c) Homeowners association defined. (1) “Homeowners association” means a condominium management association, residential real-estate management association, or timeshare association that: (A) is organized and operated to acquire, construct, manage, maintain, and care for association property; (B) receives at least 60 percent of its gross income for the year solely as membership dues, fees, or assessments from the relevant owners—(i) residential-unit owners for a condominium association, (ii) residence or residential-lot owners for a residential real-estate association, or (iii) owners of timeshare use rights or timeshare ownership interests in association property for a timeshare association; (C) spends at least 90 percent of its expenditures acquiring, constructing, managing, maintaining, and caring for association property and, for a timeshare association, on activities for or on behalf of its members; (D) does not use net earnings for a private shareholder^* or individual, except for acquiring, constructing, managing, maintaining, or caring for association property or rebating excess dues, fees, or assessments; and (E) elects, when and how the Secretary’s regulations require, to apply this section for the year. (2) “Condominium management association” means an organization meeting paragraph (1)(A) for a condominium project in which substantially all units are used as residences by individuals. (3) “Residential real estate management association” means an organization meeting paragraph (1)(A) for a subdivision, development, or similar area in which substantially all lots or buildings may be used only as residences by individuals. (4) “Timeshare association” means an organization other than a condominium management association that meets paragraph (1)(A), if any member has a timeshare right to use, or timeshare ownership interest in, real property^* that is association property. (5) “Association property” means (A) property held by the organization, (B) property commonly held by its members, (C) property within the organization that members privately hold, and (D) property owned by a governmental unit and used for that unit’s residents. For a timeshare association, it also includes property the association or its members may use under rights arising from recorded easements, covenants, or other recorded instruments related to the timeshare project.

(d) Homeowners association taxable income defined. (1) For an organization and taxable year, this income is the excess, if any, of (A) gross income for the year, excluding exempt-function income, over (B) deductions allowed by this chapter that are directly connected with producing gross income, excluding exempt-function income, calculated with paragraph (2)’s changes. (2) The changes are: (A) a $100 specific deduction is allowed; (B) no net-operating-loss deduction under section 172 is allowed; and (C) no deduction under part VIII of subchapter B, concerning special corporate deductions, is allowed. (3) “Exempt-function income” means amounts received as membership dues, fees, or assessments from (A) condominium housing-unit owners for a condominium management association, (B) real-property owners for a residential real-estate management association, or (C) owners of timeshare rights to use or ownership interests in real property for a timeshare association.