How to Create an HOA Budget (Step by Step)

A good budget is the difference between a community that quietly funds its future and one that lurches from one special assessment to the next. Here’s how to build one, even without a management company.

Step 1: Gather real numbers

Pull the last 12 months of actuals and current contracts. Don’t start from “last year plus 3%” — start from what things actually cost now, which matters more than ever with insurance and vendor inflation. Pulling clean actuals is easiest when the books already follow a standard chart of accounts, so every line item lands in the same category year over year.

Step 2: Build operating expenses

List every recurring cost:

• Insurance (master policy)
• Utilities for common areas
• Landscaping & maintenance
• Management / administration
• Repairs & supplies
• Legal & accounting
• Contingency (a small buffer)

Because most HOAs operate as nonprofits, the budget must align with tax-exempt reporting requirements — see are HOAs nonprofit for what that means at filing time.

Step 3: Fund reserves from the study

Add the reserve contribution your reserve study recommends. This is the half boards are tempted to shrink to keep dues low — and the exact reason communities get hit with special assessments. Fund it.

How much of the budget goes to reserves? For most associations, 15–40% of total dues is a reasonable band, depending on component age and how close you are to a fully-funded threshold. A newer community with fewer big-ticket components may sit near the low end; an older community catching up after years of under-funding may need to sit at the high end. Aim for a reserve contribution that keeps your percent-funded ratio climbing toward the fully-funded target in your reserve study — not just “whatever we did last year.”

Allocating dues by unit size. Many condo and townhome declarations divide dues by square footage or by a percentage-interest schedule recorded in the declaration. Sum every unit’s square footage, divide each unit’s footage by the total, and multiply by the annual budget to get that unit’s share. Verify the exact formula in your declaration — some documents use equal shares, some use recorded percentages that don’t perfectly track square footage, and using the wrong basis can invalidate the levy.

Step 4: Set the dues

Add operating + reserves + contingency, divide by the ownership shares in your declaration, and you have each owner’s assessment. Model it with our reserve fund calculator to see how the reserve piece affects the monthly number.

Step 5: Adopt and notice it properly

Most associations adopt the budget at a noticed meeting and must send owners notice; some documents let members reject it by a set margin. Understanding HOA board member duties helps clarify who is responsible for presenting and defending the budget. Follow your bylaws and state law precisely so the budget — and the dues it sets — stand up.

How big should the contingency line be?

A 3–5% contingency on top of operating expenses is a reasonable default. It absorbs the small surprises — a mid-year vendor price hike, an unexpected minor repair, a legal consult — without forcing you to dip into reserves. It is not a substitute for reserves; it is a smoothing line inside the operating budget.

2026 inflation assumptions to build in

Do not copy last year’s numbers straight across. For a 2026 budget, plan for roughly:

• Insurance master policy — up 10–25% or more in coastal, wildfire, and older-building markets; low-single-digit increases in calmer regions.
• Utilities (water, sewer, electric, gas for common areas) — 4–8%.
• General expenses (landscaping, janitorial, supplies, admin) — 3–5%.

These are directional ranges, not guarantees. Pull actual renewal quotes from your insurance broker and utility rate notices from your local providers before locking numbers.

Audit vs. review vs. compilation

Your annual financial engagement is not one product. There are three, at very different price points and levels of assurance:

• Audit — a CPA gives an opinion on the financials. Highest assurance, most expensive: often $5,000–$15,000+ for a mid-size association. Many states require an audit above unit-count or revenue thresholds.
• Review — the CPA gives limited assurance (mostly analytical procedures and inquiry). Roughly $2,000–$6,000.
• Compilation — the CPA assembles the financials with no assurance attached. Roughly $1,000–$3,000.

Check your governing documents and state statute for the mandated level. Do not downgrade from audit to compilation just to save money if your state or CC&Rs require the higher level — the shortcut can void a budget adoption.

Multi-year capital project budgeting

Big projects — a full roof replacement, elevator modernization, retaining walls — rarely fit inside one operating year. Give each one its own line in the reserves section and document:

• Scope and phasing — what work happens in which year.
• Total project cost and any escalation assumption per year.
• Funding source — reserve draw, special assessment, association loan, or a blend. See our guide on special assessments for when to raise dues vs. levy an assessment.

Attach the reserve-study page(s) covering the component. Owners should be able to trace every capital dollar to a real component.

Notice period before adopting the budget

State law and CC&Rs both set notice periods. Common examples:

• California — a pro forma operating budget must be distributed 30–90 days before the fiscal year begins (Civ. Code §5300).
• Florida — meeting notice at least 14 days before the budget-adoption meeting is typical, with the proposed budget included.
• Texas — 30 days’ advance notice of a budget or dues-increase meeting is common under TROA Chapter 209 principles.

Confirm the exact number in your state statute and your bylaws before you adopt. Missing the notice window is the single most common reason a properly sized budget still gets challenged.

Bad-debt and delinquency assumptions

Not every owner pays on time. A healthy starting point is to reserve 1–3% of dues revenue for uncollectible accounts. Older communities with a history of vacancies or foreclosures may need more. Model it as a line inside operating expenses so your collectible dues cover the actual budget — not just the invoiced total. See what happens to HOA dues when a house forecloses for the early-warning metrics worth tracking if delinquencies start creeping up.

Operating surplus rolled to reserves

If the year ends with an operating surplus, boards often want to sweep it into reserves. Under IRC §528 (filed on IRS Form 1120-H), qualifying associations are taxed only on non-exempt income, and excess member income can be treated favorably — but the mechanics matter. Rolling a large surplus without a proper resolution or without the §528 election in place can trigger unexpected tax. For anything material, talk to a community-association CPA at the IRS filing season, not after. See are HOAs nonprofit for how the revenue test and member-income test work under Form 1120-H.

Getting the management-company piece right also affects total cost — see how to pick an HOA management company for what a reasonable per-door fee actually looks like.

HOA budget template

Use this HOA budget template as a starting point. Copy the line items into a spreadsheet, fill in the amount column with your own numbers, and adjust the categories to match your community. Every well-built HOA or condo budget has the same three parts: income, operating expenses, and reserve funding.

Part 1 — Income

Line item	Annual amount	Notes
Regular assessments (dues)	$	Owners × dues × periods
Late fees & fines	$	Budget conservatively
Interest income	$	On operating/reserve accounts
Other income (laundry, rentals, etc.)	$	Only reliable sources
Total income	$	Should fully fund Parts 2 + 3

Part 2 — Operating expenses

Line item	Annual amount	Notes
Insurance (master policy, D&O)	$	Often the largest single line
Utilities (water, sewer, electric, gas, trash)	$	Common-area only
Landscaping & grounds	$	Contract + seasonal
Management fees	$	Per-door or flat
Repairs & maintenance	$	Routine, not reserve items
Administrative (legal, accounting, postage)	$	Include the annual audit/review
Contingency	$	A small buffer for surprises
Total operating expenses	$	The year’s running costs

Part 3 — Reserve contribution

Line item	Annual amount	Notes
Reserve funding (from reserve study)	$	Savings for big future repairs
Total budget (Parts 2 + 3)	$	Divide by ownership shares → dues

To use the template: enter your income at the top, list every operating cost from your last 12 months of actuals, then add the reserve contribution your reserve study calls for. Set dues so total income covers Parts 2 and 3 in full — underfunding reserves is how a special assessment sneaks up on a community. Keep line items consistent year to year so you can compare.

For a ready-to-use version with line items already filled in, download our free HOA budget template.

Free worksheet

Grab our HOA annual budget worksheet on the Run Your HOA hub to plug in your own numbers. If reserves, audits, or dues collection are getting away from you, it may be worth bringing in an accountant who knows community associations. And if you’re wondering whether the volunteers who built this budget are compensated, see do HOA board members get paid.