reserve fund

Dictionary of Business Terms for: reserve fund
reserve fund

in real estate, account maintained to provide funds for anticipated expenditures required to maintain a building. A reserve may be required by a lender in the form of an escrow to pay upcoming taxes and insurance costs. A replacement reserve may be maintained to provide for replacement cost of short-lived components, such as carpets, heating equipment, or roofing. Deposit of money into such a fund does not achieve a tax deduction.

Dictionary of Real Estate Terms for: reserve fund
reserve fund

an account maintained to provide funds for anticipated expenditures required to maintain a building. A reserve may be required by a lender in the form of an escrow to pay upcoming taxes and insurance costs. A replacement reserve may be maintained to provide for replacement cost of short-lived components, such as carpets, heating equipment, or roofing. Deposit of money into such a fund does not achieve a tax deduction.

Example: A property management firm anticipates that property taxes will be due in 6 months, insurance must be renewed in 2½ years, and carpeting must be replaced in 6 years. Accordingly, they establish a reserve fund by depositing a portion of monthly revenues in an account. Monies from the fund will be used at the appropriate time to meet the future expenditures.

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