Definition
Income from members for the HOA's core purpose — like dues — that can be excluded from taxable income on Form 1120-H.
Exempt function income is money an HOA receives from its members to carry out its core purpose — primarily assessments and dues used to maintain and operate the community. On Form 1120-H, this income is generally excluded from taxation.
Non-exempt income (such as interest, or fees from non-members) is taxable. The distinction is central to how HOAs are taxed, which is why associations typically use a CPA familiar with the rules. This is general information, not tax advice.