1. Which tax form do HOAs need to file?
Associations generally have two tax filing options available, form 1120 or Form 1120-H. Form 1120 is a regular corporation tax form and is required for commercial condominium associations. However, filing this form can be very burdensome and requires a lot of information from the association. Form 1120-H is also another easier option for HOA’s. This form requires the allocation of income and expenses between “exempt-function income” and “non-exempt-function income.”
2. Do all HOAs file form 1120?
Not all HOA’s have to file this form given that they meet certain criteria to bypass filing this tax form. Avoiding filing an 1120 form can be achieved by utilizing section 528 of the tax code. In short, this gives HOA’s the ability to file a much shorter and simpler form, 1120-H. However, it is advised for HOA’s to compare its total tax computed on Form 1120-H with its total tax computed on Form 1120.
3. Are there any benefits if you qualify for 1120-H?
A HOA files this form as its income tax return to take advantage of certain tax benefits. By filing this form, an HOA is able to exclude exempt function income from its gross income.
4. Are there any tax exemptions for HOA’S?
HOAs may qualify for tax exemption as a social welfare organization as long as they maintain common areas, streets, and sidewalks. The association would also have to provide evidence along with an exemption application that shows evidence that areas such as parks and roadways are open to the general public. Additionally, an HOA may elect to be categorized as a non profit tax-exempt organization by the IRS.
5. Does my HOA need to qualify for 1120-H every year?
A HOA must qualify each year by filing an 1120-H before the 15th day of the 3rd month after the end of the HOA’s tax year.