Yes, HOA, You Must File a Tax Return

There are over 330,000 community associations in the United States.  These associations regulate over 26 million households and over 68 million residts.  Over ninety-five perct of these associations are homeowner associations whose members own either a residce or a condominium. 

Homeowner Associations are a fact of modern living.  They span the country and come in all shapes and sizes.  Some HOAs maintain skyscrapers filled with spacious condominiums owned by city elite.  Others manage residtial communities comprised of hundreds of dotting large swaths of suburbia.  The vast majority of HOA’s, however, are much smaller and primarily tasked with maintaining the roads and mowing common areas for a handful to several doz home owners. 

Regardless of the lotion and size of these HOAs, all have one thing in common.  Each and every Homeowners Association in the United States must file a tax return each and every year.  This fact arrives as a shock to many HOA directors who believe they are ext from taxation beuse their HOA is not a business – it is registered with their state as a nonprofit or a tax ext association. 

Unfortunately, this is not the se.  The IRS completely ignores the state-registered structure of their HOA.  To be treated as a nonprofit by the IRS, an HOA must formally apply and be granted the very rare honor of being approved as a 501(C) organization.  Historilly, HOAs that had not received formal nonprofit approval were treated as corporations for tax purposes and forced to file a return, Form 1120, each year. 

This policy placed HOAs in a confusing situation that did not reflect their reality.  Although most HOAs are not true nonprofits – organized to befit the geral public, they are definitely not in business – selling a or service to gerate profit!  They are volunteer organizations (if ’re in an HOA, know how loosely I use this term) created to force the common covants and maintain the common areas of their community. 

Homeowner Associations remained in this tax no-mans-land until 1976 wh congress passed the Act of 1976.  The Act of 1976 created Form 1120-H and a tax definition of what a homeowners association is and, therefore, who n file Form 1120-H.  I will not elaborate on this definition here – it’s rather convoluted and wordy – but suffice it to say that the vast majority of HOAs meet this definition. 

Those who most ely qualify to file Form 1120-H are HOA’s that function solely to collect dues and assessmts from members and to use these dues and assessmts to manage and maintain HOA property.  Many HOAs that ely qualify will also have some interest income from savings or certifites of deposits – interest earned on funds set de to repair and replace HOA property.

HOAs that ely qualify to use Form 1120-H will not have additional income from nonmembers or members for the oil well royalties, cell tower rtal, or the use of amities such as swimming pools, clubhouse rtals, or laundromats.  Although many HOAs that receive these forms of income will still qualify to file Form 1120-H, that determination, as well as preparing the return, becomes much more complited.

For HOAs that ely qualify, however, preparing Form 1120-H is relatively simple.  So simple, in fact, that, a firm for which I am an instructor, has allowed me to develop a course to help HOAs prepare their own Form 1120-H (at a small fraction of the cost of hiring a professional).  If ’re a director for an HOA that ely qualifies to file Form 1120-H, I invite to learn more about our Form 1120-H Bcs Course.

Check out our 1120-H Basics Course to learn how n complete this form rself


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