In fact, most associations automatically file for an extension because 75 days usually aren’t enough to make all the necessary preparations. If you expect to go beyond the due date, you can file for an extension for free. Make sure to prepare all the required documentation during those 75 days so that you don’t miss the deadline. In that case, the deadline falls on the 15th of March. Most HOAs have a fiscal end date of December 31, the last day of the year. Your HOA accountant can also help with filing federal HOA tax returns.įor non-profit corporations, the deadline for filing federal tax returns is 75 days after the end of their fiscal year. To determine whether your HOA needs to pay state taxes, it is best to check with a CPA. Your HOA may need to file a state homeowners association tax return depending on the location you are in.įor instance, HOAs need to file tax returns and pay taxes in Massachusetts. In fact, you can even do this process over and over again forever.ĭoes an HOA have to file a tax return? When it comes to state taxes, the laws differ from state to state. If in the future, your HOA makes less money than anticipated, you can use the rolled over income to make up for the losses. Aside from avoiding taxes, another benefit of a rollover is compensation. Under this ruling, the IRS will consider the rollover as a constructive return of capital to association members. To roll income over, most associations require a board vote, though it is best to check your own governing documents for the process.īy rolling your income over to the following year, you can take advantage of the Ruling 70-604. That effectively allows you to delay or altogether avoid paying taxes on that extra income. If by the end of the year, you find that your HOA earned more money than usual, you can choose to roll it over to the next year. Some examples of 1120-H deductible expenses include maintenance costs and cleaning costs. Make sure to include supporting documents, though, to signify these as non-exempt income. If your community has vending machines in various places, income earned from those is also considered non-exempt. Some examples of non-exempt income include rental income and dividends. That means your HOA must only pay taxes on non-exempt income. When you file this form, your HOA can choose not to include exempt function income from your gross income. In comparison to Form 1120, IRS Form 1120 H has one noticeable benefit. The annual residual income must not be spent for the benefit of the community members.85% of units in your association must be residential.90% of your expenses must have gone to operations and maintenance.60% of your revenue must have come from the association’s members (regular and special assessments, interest, late fees, etc.).Your HOA can only file this form if it fits the following qualifications:
It is significantly easier to accomplish, though it does come with homeowners association tax filing requirements. If you dislike Form 1120, under section 528 of the IRC, you can choose to file Form 1120H instead.
Additionally, accomplishing this form calls for more advanced accounting knowledge. That means any unused money at the end of the period gets taxed as well. On the downside, though, it subjects all of your association’s net income to taxation. There are both pros and cons to using this form.įor instance, HOAs that file this form experience a lower tax rate (15%) for the first $50,000 of net income. It also requires a ton of important information to fill out. Most homeowners associations file Form 1120 with the IRS, though it involves a great deal of work. So, what is the difference between these two forms? Let’s break them down below: When it comes to HOA taxes, there are two forms you must take into account: Form 1120 and Form 1120-H. Knowing which forms you must file, though, can make the process easier. Homeowner association tax time can be a stressful period for many HOA boards. Keep in mind that filing for such recognition requires a ton of work and involves Form 1024. If your HOA registers as a non-profit with the IRS and subsequently accepted as such, you don’t fall under this category.
There is a rare exception to this rule, though. Following this logic, the short answer to the question, “Does an HOA pay taxes?” is yes. So, even though your HOA is not-for-profit, it must still follow corporate rules when it comes to taxes. Do HOA’s file tax returns? Under the eyes of federal tax laws, homeowners associations fall under the category of corporations.
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