About Form 1120, U S. Corporation Income Tax Return Internal Revenue Service

Second, make sure that tax planning is done early on with a qualified HOA CPA to ensure that any tax initiatives are implemented. So far, we’ve touched upon the topic of exempt and non-exempt income a few times but now we really want to dig into the logistics of it all. With personal tax returns, the process is easy because you can just list all your income and expenditure before then working out what you owe. With HOAs, the story is very different and the easiest way to explain it is that the IRS needs to work out which financial transactions (going either way) are a result of the HOA and which aren’t.

Association tax forms: H&R Block suggests Schedule C

Services provided by a tax professional, financial institution, payroll service, or other third party may have a fee. If a homeowners association fails to pay the tax due on Form 1120-H by the filing deadline, interest will be charged on the late payment, even if an extension of time to file has been granted. Additionally, penalties may be imposed for negligence, substantial understatement of tax, reportable transaction form 1120-h understatements, and fraud.

Understanding the Tax Rate and Federal Tax Paid on Fuels Credit

But you must pass a few tests in order to file Form 1120H. Exempt function income includes membership dues, fees, and assessments, as well as income spent on common areas or facilities. Additionally, HOAs can receive an automatic 12-month extension from the original due date to make the election to file Form 1120-H.

Exempt Expenses – First and foremost, you might have an association manager and/or secretary.
The instructions also provide direction on allowable deductions, accounting methods, estimated tax payments, filing extensions, and more.
Check eligibility requirements on the IRS website if exploring DIY options.
To summarize, associations filing Form 1120-H can deduct any reasonable expenses for producing taxable income reported on the return.
Use the association’s accounting method to figure the entry for item D.

Form 1120-H and Tax Planning

So in summary, Form 1120-H allows eligible HOAs to exclude certain income from taxation and use simpler tax accounting methods. This can help reduce an HOA’s overall tax compliance burden. We’re a headhunter agency that connects US businesses with elite LATAM professionals who integrate seamlessly as remote team members — aligned to US time zones, cutting overhead by 70%. Think About Your HOA – Every year, you can choose between Form 1120 and Form 1120-H so don’t forget this. If you filed Form 1120 last year, this doesn’t mean you’re stuck on this side forever more.

There we have it, your ultimate guide to the 90% expenditure test within Section 528.
In each section, we will discuss some of the critical definitions and give you some real world examples that are applicable to HOAs.
Any HOA should try to minimize income taxes and reduce risk.
With professional help, you’ll find it much easier to pass the requirements and ensure you can file the form you desire.
Homeowners associations (HOAs) that meet certain requirements can file Form 1120-H to report association income and expenses.
As long as you remember that you can file either form every year and you know the exempt and non-exempt income, you shouldn’t actually have a problem.

The Taxpayer Advocate Service

To qualify as an HOA, a minimum of 90% of the association’s expenses for a given year shall consist of expenses to manage, maintain and care for the association property. Generally, an association must file Form 1120-H by the 15th day of the 4th month after the end of its tax year. However, there is an exception for associations with a fiscal year ending June 30 – they must file by the 15th day of the 3rd month after the end of the tax year. Meeting all due dates and extensions is crucial for HOAs to avoid penalties for late filing or late payment of tax.

Defining the IRS Homeowners Association Tax Form

This extension gives more time to determine if the HOA meets the 60% gross income and 90% expenditure tests. To receive this extension, check the extension box on Form 1120-H. When filing form 1120-H, the association is not subject to tax on any net exempt function income.

Other penalties can be imposed for negligence, substantial understatement of tax, reportable transaction understatements, and fraud. For deposits made by EFTPS to be on time, the association must submit the deposit by 8 p.m. If the association uses a third party to make deposits on its behalf, they may have different cutoff times. If you have to add two or more amounts to figure the amount to enter on a line, include cents when adding the amounts and round off only the total.

Exempt function income is specifically identified as not taxable, while non-exempt function income is taxable. Don’t include expenditures for property that is not association property. Also, don’t include investments or transfers of funds held to meet future costs. An example would be transfers to a sinking fund to replace a roof, even if the roof is association property. If a change in address occurs after the return is filed, use Form 8822-B, Change of Address or Responsible Party—Business, to notify the IRS of the new address.