The Ultimate HOA Tax Season Cheat Sheet

February 4, 2020

When tax season rolls around, you’re probably focused on filing your personal tax returns, but don’t forget that it’s tax time for your HOA, too. As a board member, we know HOA taxes can be confusing, but we’re here to help. In this post, we answer the most frequently asked HOA tax questions, so you're prepared to make the best decisions on behalf of your community.

Is my HOA tax-exempt?

According to the Internal Revenue Service (IRS) website, for an HOA to be tax-exempt, the association must prove it doesn’t perform exterior maintenance for privately-owned homes and that the land it owns and maintains is available for public use. It’s very rare for any HOA to have tax-exempt status, even if it’s set up as a non-profit. For federal tax purposes, an HOA is considered a business. It’s best to check with your association’s Certified Public Accountant (CPA) before acting, but your HOA will likely need to file a corporate tax return just like any other corporation. And remember, just because filing a tax return is mandatory for your HOA, it doesn’t necessarily mean you’ll owe any tax.

Which tax return form does my HOA need to file?

Your HOA can either file Form 1120, U.S. Corporation Income Tax Return, or Form 1120-H, U.S. Income Tax Return for Homeowners Associations. Your HOA can compare each form and file the one with the lowest tax.

What is Form 1120?

Form 1120, U.S. Corporation Income Tax Return, is the tax form that U.S. corporations use to determine their income tax liability and report their income, losses, gains, credits, and deductions to the IRS.

What is Form 1120-H?

Form 1120-H, U.S. Income Tax Return for Homeowners Associations, is a tax form specifically for HOAs. Form 1120-H is more straightforward than Form 1120 and offers additional tax benefits for HOAs. With Form 1120-H, exempt-function income—like dues, fees, and assessments from owners–can be excluded from your HOA’s gross income.

There are certain requirements your HOA must meet to be eligible to file Form 1120-H. We recommend working with your HOA’s CPA and management professionals to determine which form is best for your association.

When are HOA tax returns due?

Your HOA must file Form 1120 and Form 1120-H on or before the 15th day of the 4th month after the end of your HOA's tax year—typically April 15th for most associations. However, if your association’s fiscal year ends on June 30th, you must file on the 15th day of the 3rd month after the end of the tax year. Check the IRS website for specific details about your due date, extensions, and how to submit your tax forms.

Who prepares and files my HOA’s tax return?

Your HOA’s treasurer is responsible for the association funds and maintaining all the board’s financial records. The treasurer can choose to prepare and file the HOA’s tax return on their own; however, it's recommended you outsource this task to an accounting partner. If your HOA decides to partner with a CPA, the treasurer should be the liaison during the process and confirm all forms are filed on time to avoid penalties.

3 Questions to Ask When Selecting a CPA for Your HOA

Often, HOAs elect to engage in the services of a CPA—especially during tax time. If your association doesn’t have a CPA, be sure to ask these questions before selecting one.

1. Do you have experience with HOAs?

Understanding the ins and outs of HOA taxes can be complicated, so it’s essential to find a CPA who specializes in the community association industry. When selecting a CPA, have him or her detail their experience with HOAs, provide references from similar-sized communities, and ask about any designations or credentials that would qualify them to represent your community.

2. How much are your tax services?

Be sure to ask about the CPA’s annual fee for tax preparation, as well as their firm’s fee increase history. You won't want to have any surprises during tax time.

3. Do you have time to take on another client?

It’s no secret that CPAs are very busy during the first four months of the year. Make sure he or she has the time and ability to provide tax services for your HOA. There can be penalties if your HOA doesn’t file a tax return annually.