File Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns, to request an extension of time to file. Generally, the association must file Form 7004 by the regular due date of the return. Timeshare association property includes property related to the timeshare project that the association or its members have rights to use. These rights must arise out of recorded easements, covenants, or other recorded instruments. Properly filing HOA taxes can be more complicated than you think.

However, it exists and we’re going to answer some of the most important questions here today. In total, there are four main requirements to Form 1120-H and all four will need to be met by your HOA to qualify. If these aren’t met, the only option is normally to file under Form 1120 but an accountant will help you with this if you don’t pass the requirements below. Within Section 528 of the IRC, you’ll see certain restrictions and requirements and these need to be passed in order to qualify. Although there are a couple of note, the most interest seems to come around the ‘90% expenditure test’. However, we’re getting ahead of ourselves because we briefly want to show all the requirements for Form 1120-H so you have a better idea for how it all works.

Payment of Tax (Line

• 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.
• Follow the country’s practice for entering the name of the state or province and postal code.
• While we take all precautions to ensure that the data on this site is correct and up-to-date, we cannot be held liable for the accuracy of the tax data we present.
• Don’t include expenditures for property that is not association property.
• These rights must arise out of recorded easements, covenants, or other recorded instruments.
• It all depends on the facts and circumstance surrounding the association.

To qualify as a homeowners association, the following must apply. Accordingly, the HOA should not be taxed on any of these activities solely because the homeowners have an association formed to carry out these duties specifically on their behalf. So just like other entities, they need to do relevant tax planning in order to minimize any potential tax impact. In this post we are taking a look at the differences between filing two different forms. With property taxes, this is often where the most confusion lies because some think you can’t include one tax in a conversation regarding another tax.

Calculating Taxable Income and Exempt Function Income

Filers of Schedule M-3 (Form 1120), Net Income (Loss) Reconciliation for Corporations With Total Assets of $10 Million or More, use this schedule to provide answers to additional questions. CondoAssociation is dedicated to providing the connections, resources, answers and thought leadership needed to help condo associations thrive. It all depends on the facts and circumstance surrounding the association. Make sure you review the situation with your CPA and make the best decision for your association. While we take all precautions to ensure that the data on this site is correct and up-to-date, we cannot be held liable for the accuracy of the tax data we present. Please use the link below to download 2024-federal-form-1120-h.pdf, and you can print it directly from your computer.

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 form 1120-h 1120-H, the association is not subject to tax on any net exempt function income.

Form 1120-H and Tax Planning

• Within Section 528 of the IRC, you’ll see certain restrictions and requirements and these need to be passed in order to qualify.
• In all cases, the method used must clearly show taxable income.
• On this occasion, you only have 80% which means you’re some way away from hitting the target.
• Do not enter “See Attached” or “Available Upon Request” instead of completing the entry spaces.
• Next we will examine certain deductions that relate to gross income, excluding exempt function income.
• Associations should also be aware of any tax law changes that may affect their filing and ensure they have the necessary consent from the IRS for any changes in accounting methods or tax years.

Books or records relating to a form or its instructions must be retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required by section 6103. Enter the association’s total expenditures for the tax year including those expenditures directly related to exempt function income.

LLC Electing S Corporation Status – Do Not File Form 1120 (Use 1120-S)

Meanwhile, pass-through entities (like default LLCs) got a new 20% Qualified Business Income (QBI) deduction through 2025, which can lower the owner’s personal tax on LLC profits. By default, the IRS does not treat an LLC as a corporation. A single-member LLC is usually a “disregarded entity” (its income goes on the owner’s personal tax return). A multi-member LLC defaults to a partnership (filing a partnership return).

Exempt Expenses – First and foremost, you might have an association manager and/or secretary. Since they have the sole purpose of managing the HOA (i.e. they wouldn’t be required if the HOA didn’t exist), their salary can be included within the exempt expenses. Every day, they handle all HOA-related issues and ensure the whole process is running smoothly so this should be the first expense on your list. All homeowner associations (HOAs) must file a tax return every single year.

IRS Form 1120-H is an often misunderstood form and the instructions can be confusing. All HOAs and condominium associations (whether residential or commercial) must file federal tax returns. In addition, most states require a state income tax return to be filed as well. In the first two scenarios (disregarded or partnership), the LLC’s income passes through to owners’ tax returns and no Form 1120 is filed. In the third scenario, the LLC becomes a corporation for tax purposes and must file Form 1120 (paying tax at the entity level). HOAs that file form 1120-H are taxed at a flat rate of 30%.

Next Steps for Homeowners Associations Post-Filing

For HOAs, this penalty is $210 per month up to 12 months. In addition to penalties and interest, the IRS may audit an HOA that has failed to file returns. This means examining the HOA’s books, financial records, and activities to verify tax obligations. If the HOA meets these requirements, it can elect to file Form 1120-H.

According to the instructions, if you generate income aside from assessments and fees in which the HOA members are acting as customers of the HOA. This also relates to income received for use of the HOA facility to the exclusion of the other unit owners. After this, there are several other requirements including the fact that taxable income will include any income gained without being directly caused by the HOA itself. For example, membership dues are exempt but any income coming from facilities such as a hall, pool, or vending machine, are taxable. You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number.

You could also consider a cost segregation study to lower any taxable income. Non-Qualifying Expenses – Why do people tend to have such trouble with Form 1120-H? So far, it seems as though the requirement should be easy to calculate in advance but there are certain caveats to the rules which can make it hard to follow unless you have experience. For example, the biggest would be income and expenditure on features not designated as association property. For example, the HOA may sublease property that is used to rent out.