HOA & condo accounting, explained for the rest of us.
If your board just took over the books — or just fired its management company — this is the money side in plain English. Operating vs. reserve funds, budgets, dues and special assessments, reserves, delinquency, financial statements, and taxes. No accounting degree required. BoardPath doesn’t keep your books or touch your bank account — we just make sure your board actually understands them.
This guide reflects how experienced community managers and treasurers typically handle these things — it’s educational, not accounting, tax, or legal advice. For preparing returns, audits, liens, or anything contested, use a CPA or attorney.
Two ideas that matter more than any spreadsheet.
Operating vs. reserve funds (and why “fund accounting” isn’t scary)
“Fund accounting” just means tracking each pot of money separately — its own balance, its own income, its own expenses. Your operating fund is the checking account everyday money flows through. Your reserve fund is a savings account you feed a little every year so the money’s there when a major component wears out.
How treasurers typically handle it: two bank accounts from day one. The budget includes a line called “Reserve Contribution,” and that amount physically transfers from operating to reserve on a schedule. Reserve money is only spent on reserve components (roofs, roads, paint), usually with a board vote.
Worked example: dues bring in $60,000/year. The budget puts $48,000 toward operating and a $12,000 reserve contribution — about $1,000 a month moving into reserve savings, untouched until a real replacement.
⚠️ If reserves were commingled or “borrowed” and you’re unsure how to unwind it, confirm the cleanup with a CPA.
Building an HOA budget — and watching budget vs. actual
The budget is your money plan for the year and the justification for the dues amount. The way most treasurers build one:
- Start from last year’s actuals by category.
- Adjust for known changes (an insurance increase, a new contract, inflation).
- Add the reserve contribution your reserve study recommends.
- Total the expenses → that’s the income you need → divide by units → that’s the dues.
- Leave a small contingency for surprises.
Budget vs. actual is the one habit that catches most problems while they’re small: each month, compare what you planned to what you spent, by category, and investigate the big gaps. If you’re running a deficit, the options are trim expenses, raise dues at renewal (within the limits below), or — for a true one-off — a special assessment. Raiding reserves is not on the list.
Worked example: expenses total $66,000 (including $12,000 reserves) across 40 units → $1,650/unit/year, about $137.50/month in dues.
Raising dues and levying special assessments — the rules boards miss
Regular assessments (dues) fund the budget. A special assessment is a one-time extra charge for something the budget and reserves don’t cover. The part boards get wrong isn’t the math — it’s the rules for changing them.
Your governing documents and state law usually set limits on how much the board can raise regular dues in a year without an owner vote, and on the threshold, vote, and written notice required to levy a special assessment. Experienced boards check the declaration/CC&Rs, bylaws, and state statute for the exact cap, vote, and notice before acting — and document that they followed them.
This is exactly where governance and accounting meet: “What’s our cap and notice requirement to raise dues?” is a question your governing documents answer — and the kind BoardPath answers with the citation. The money tool charges the dues; BoardPath confirms you’re allowed to.
⚠️ A contested special assessment, or one near the legal threshold, is a place to confirm with your association’s attorney.
How much should an HOA have in reserves?
Reserves are the savings pot for major replacements, and the number that matters is your percent funded — how much you actually have versus what a reserve study says you should by now. A reserve study sets the annual contribution; your budget moves that money from operating into reserve every year (the “Reserve Contribution” line above). On the accounting side, the rule is simple: fund what the study recommends, and never raid reserves to cover an operating gap.
The full breakdown — the funding bands, what a reserve study covers, and what underfunding triggers — lives on one page so it stays in sync. Full reserve-funding detail →
⚠️ The study itself is done by a credentialed reserve specialist; funding/tax treatment is a CPA question.
When an owner doesn’t pay — the collections process
Unpaid assessments starve the operating budget and push cost onto paying owners. Collecting them follows a process set by your documents and state law — not improvised. The typical escalation (the governance side — the notices and steps):
- A reminder / late notice once payment is past due.
- A late fee and/or interest — but only what your documents/state allow.
- A formal demand letter stating the balance and consequences.
- A lien filed against the unit (strict notice and procedure rules).
- Further legal action — foreclosure is a last resort and heavily regulated.
The key: a written collections policy applied consistently to everyone (selective enforcement invites fairness and fair-housing complaints), with the documents/state checked at each step.
⚠️ Liens, foreclosure, and any contested collection go through your association’s attorney.
The two statements every board should read — in five minutes
The balance sheet is a snapshot right now: what the association has (operating cash, reserve cash, receivables), what it owes (payables), and the fund balances. The income statement (budget vs. actual) covers a period: income and expenses by category, plan vs. reality.
The five-minute monthly review:
- Operating cash — enough to cover the next bills?
- Reserve cash — growing on plan?
- Delinquencies (receivables) — trending up?
- Any category way over budget?
- Any unfamiliar or unusual transaction?
Most treasurers circulate a short monthly packet — balance sheet, budget-vs-actual, delinquency list, bank reconciliation — and the board reviews it together, noted in the minutes.
Preventing fraud (and protecting your volunteers)
Internal controls are simple checks so no one person can quietly move money — and so honest volunteers are never under suspicion. The core ones:
- Dual approval / two signatures on payments above a small threshold.
- Separation of duties — whoever writes checks isn’t the only one reviewing the bank statement.
- The board — not just the treasurer — reviews monthly financials and the bank statement.
- Traceable rails (ACH, checks) over personal payment apps; minimal cash; few or no debit cards.
- An annual review or audit appropriate to your size.
HOA embezzlement is common enough that boards in our research watched a treasurer embezzle $150,000. Controls prevent it and protect the treasurer from accusation.
⚠️ If you suspect fraud, stop and involve a CPA and the association’s attorney immediately.
Do HOAs pay taxes? Form 1120-H, explained
Yes — HOAs generally must file federal taxes, even though most aren’t charities. Two common options:
Form 1120-H is the HOA-specific election. It’s simpler, exempts “exempt function income” (your member assessments) from tax, and taxes only non-exempt income (like interest), usually at a flat rate. Most small associations use it for the simplicity and protection. Form 1120 is the regular corporate return — sometimes a lower rate on some income, but more complex and riskier if member income gets mis-taxed.
The 1120-H is elected each year by filing on time — miss the deadline and you can lose the election for that year. Keep clean books all year so the return is easy, and use a CPA to prepare and file. Most boards do not self-file.
⚠️ Preparing and filing, and the 1120-H vs. 1120 choice, are CPA work. BoardPath tracks the obligation and deadline and explains the basics; it does not prepare returns.
Does our HOA need an audit?
Three levels of outside CPA examination, deepest to lightest: an audit tests the numbers and gives an opinion they’re fairly stated (most assurance, most cost); a review does analysis and inquiry for limited assurance; a compilation just assembles your statements in proper form with no assurance (lowest cost). Your documents or state law may require one, often triggered by budget size or unit count — and lenders or buyers sometimes ask for recent audited or reviewed statements. Most small self-managed associations land on a review or compilation unless something larger is required.
⚠️ Which level you need, and the engagement itself, is CPA work.
The money tools we point boards to.
For the money side we recommend PayHOA for dues and payments — affordable, no homeowner junk fees — and QuickBooks (or free Wave for very small associations) for the books. Not ready for software? Start with the free templates below. BoardPath handles the governance, never the bookkeeping — payments and the books are just two pieces of a larger stack that also covers reserves, legal, insurance, and elections.
We may earn a referral if you sign up for a recommended tool through us — at no cost to you. We recommend what fits, not what pays.
HOA accounting templates — free, and built for non-accountants.
Tuned for HOA/condo boards (operating vs. reserve throughout), with a worked example row, built-in formulas, and a plain-English guide. Open in Excel or Google Sheets and go. How to use them →
Five spreadsheets that keep operating and reserve money apart — the way treasurers actually run the books.
Steward won’t be your accountant — but it’ll tell you how this is usually handled.
If your treasurer has a question or a concern, Steward can explain how experienced CAMs and HOA/condo treasurers typically handle it — fund separation, reserve adequacy, what your documents require to raise dues, how a collections series usually goes — in plain English, grounded in your own governing documents and state law, with a citation and a confidence score on every answer. It’s the seasoned treasurer your volunteer board never had.
Advice only. Steward doesn’t keep your books, prepare or file taxes, run an audit, or move money — and it flags when a question belongs with your CPA or attorney.
The money tool moves the money. BoardPath makes sure you’re allowed to.
BoardPath doesn’t move a dollar. It answers what your governing documents and state law require about assessments, special assessments, reserve funding, and spending authority — cited to the section — and keeps the governance record. The money tool moves the money; BoardPath makes sure the board is allowed to, and remembers why. Two clean tools, side by side.
HOA accounting questions, answered.
What is the difference between operating and reserve funds?
Operating funds cover day-to-day expenses (landscaping, utilities, insurance, small repairs). Reserve funds are savings for major future replacements (roofs, paving, painting). Most associations are required to keep them as two distinct funds — separate them from day one and never commingle.
How much should an HOA have in reserves?
A common rule of thumb: a reserve study measures "percent funded" — your actual reserves versus what the study says you should have. Roughly 70% or higher is generally considered strong; under about 30% is weak and signals special-assessment risk. The right target comes from a reserve study, not a single number.
Can an HOA board raise dues without a vote?
It depends on your governing documents and state law, which often cap how much the board can raise regular dues in a year before an owner vote is required. Always check your declaration, bylaws, and state statute for the exact cap, vote, and notice rules before raising dues.
What is a special assessment and when can a board levy one?
A special assessment is a one-time charge for costs the budget and reserves do not cover. Your documents and state law set the threshold, vote, and written-notice requirements — sometimes a board vote within a cap, sometimes an owner vote above it. Confirm the rules (and, near the limits, your attorney) before levying one.
Do HOAs pay taxes? What is Form 1120-H?
Yes — HOAs generally must file federal taxes. Many file Form 1120-H, the HOA-specific election that exempts member assessment income and taxes only non-exempt income like interest. It is elected each year by filing on time. Use a CPA to prepare and file; BoardPath tracks the obligation but does not prepare returns.
Does our HOA need an audit?
Maybe. Your documents or state law may require an audit, review, or compilation, often based on budget size or unit count. An audit gives the most assurance, a review less, a compilation none. Check your requirements and budget for it; the engagement is CPA work.
What financial reports should an HOA board review each month?
A short packet: the balance sheet (cash, reserves, receivables), a budget-vs-actual income statement, a delinquency list, and the bank reconciliation. A five-minute review each month — is operating cash enough, are reserves on plan, are delinquencies rising, is anything over budget or unusual — catches most problems early.
Does BoardPath do my HOA accounting or collect dues?
No — on purpose. BoardPath is the governance brain. It works alongside payment tools like PayHOA and accounting tools like QuickBooks, and Steward can explain how CAMs and treasurers typically handle accounting questions — but BoardPath never keeps your books, files taxes, or touches your bank account.
Get the money side set up right.
The Self-Managed Board Playbook includes the full accounting setup — fund separation, the tools, the first-90-days runbook, and these templates.