Considering the entity has the option to choose which form and wants to file annually they’re going to be certain questions that need to be answered. Make sure these issues are discussed extensively with your CPA and make sure that proper tax planning is completed. Form 1120 is used by C corporations while 1120-H is a tax form specifically designed for qualifying HOAs. Normally the determining factor is which will yield the lowest tax liability.
Federal — U.S. Income Tax Return for Homeowners Associations
If the association elects to file Form 1120-H, it should file for extension on Form 7004 using the original form type assigned to the entity. If the due date falls on a Saturday, Sunday, or legal holiday, the association may file on the next business day. Assessments or fees for a common activity qualify but charges for providing services don’t qualify.
Ultimately, they both offer advantages and disadvantages with Form 1120-H being less likely to receive an audit following the filing and Form 1120 offering cheaper tax rates. This document offers a comprehensive guide by the Internal Revenue Service (IRS) for homeowners associations to accurately complete Form 1120-H for the 2023 tax year. It covers each section of the form, general information, and the form’s purpose. The IRS advises that an HOA that has not filed should prepare and file any delinquent returns as soon as possible, reporting income, deductions, and credits as accurately as it can. This can help demonstrate reasonable cause and good faith in order to reduce some penalties. Filing taxes can be confusing for anyone, including homeowners associations.
- In many areas of accounting, this can be right but property taxes are a direct cost of running the HOA so they’re exempt with Form 1120-H.
- Let’s not forget, some accountants avoid HOAs because the forms and regulations are notoriously tricky to get right.
- So in essence, Form 1120-H allows qualifying HOAs to report income and expenses in order to compute tax obligations to the IRS.
- But in reality, there are many factors that should be carefully examined before determining which form to file.
- An association with a short tax year ending any time in June will be treated as if the short year ended on June 30, and must file by the 15th day of the 3rd month after the end of its tax year.
- Extension – If you left it too late and are going to now run out of time, don’t panic.
- The penalty will not be imposed if the association can show that the failure to pay on time was due to reasonable cause.
When assessing non-exempt income, this will be all revenue from non-association property. For example, this will include money earned from pool passes, car parking, laundry facilities, leasing a hall, and even something simple like a vending machine. Since all of these facilities and amenities aren’t part of the association directly, they are not exempt from tax.
Other Forms and Statements That May Be Required
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.
When To File
If this income doesn’t account for 60% of all your earnings, you might be forced into filing Form 1120 which has all sorts of implications as we saw above. If the association fails to submit a deposit transaction on EFTPS by 8 p.m. Eastern time the day before the date a deposit is due, it can still make its deposit on time by using the Federal Tax Collection Service (FTCS).
Paid Preparer Authorization
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 form 1120-h 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.
Form 1120-H Instructions
The interest charge is figured at a rate determined under section 6621. Form 1120 is the standard U.S. corporate income tax return. It is complex and used by most corporations to report income, deductions, gains, losses, credits, and to figure their income tax liability. This could include management fees, tax return fees, legal costs, insurance, utilities, repairs and cleaning. Any resulting net non-exempt function income is taxable, subject to a $100 standard deduction.
- However, it is subject to tax on any net income from non-exempt activities.
- Permissible methods include cash, accrual, or any other method authorized by the Internal Revenue Code.
- We offer help with HOA taxes, Arizona HOA tax returns and Form 1120-H.
- Income Tax Return for Homeowners Associations, to take advantage of certain tax benefits provided under section 528 of the tax code.
- As long as the HOA meets the requirements we have just discussed, Form 1120-H will be a possibility and this is the one specialized for HOAs alone.
Per the 1120-H instructions, they begin with interest income, dividends, and capital gains on association bank accounts and reserves. But they also include activities that are provided to both members and non-members in their capacity as “customers”. An example would be annual dues charged to all members for maintaining the HOA sidewalks.
There we have it, your ultimate guide to the 90% expenditure test within Section 528. If you have any questions or concerns regarding your HOA, don’t hesitate to contact a finance professional because being up-to-date with your HOA tax forms brings its advantages. With professional help, you’ll find it much easier to pass the requirements and ensure you can file the form you desire. This line will group all these expenses into a total amount. These expenses would typically include, property taxes, insurance, repairs, maintenance, management fees and legal and professional fees. Remember that the important part is that they are not allowed to be more than 90% of the income.