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A Complete Guide to Homeowners' Associations and Taxes

by
Gordon W. McNamee
on
8/21/2022
A Complete Guide to Homeowners' Associations and Taxes

Homeowners’ associations (HOAs) are incredibly common throughout the United States. These organizations typically have bylaws by which residents of specific neighborhoods are required to abide. 

While some people think only traditional suburban subdivisions have HOA rules, this isn’t necessarily true. In today’s world, even some urban districts are governed by homeowners’ associations, particularly if they are historical areas where certain architectural details need to be preserved. 

Whether you already live in a neighborhood with an HOA or are considering moving to one, understanding HOAs and taxes is essential, especially if you’re part of your neighborhood’s homeowners’ association board. 

Do HOAs need to file federal taxes?

The short answer is yes. There are two different IRS forms that homeowners’ associations can submit – Form 1120 or Form 1120-H.

Form 1120 is officially the “U.S. Corporation Income Tax Return,” while Form 1120-H is the “U.S. Income Tax Return For Homeowners’ Associations.” 

Given these two names, it might seem intuitive to file Form 1120-H, but some benefits come with choosing Form 1120 instead. In fact, the majority of HOAs choose the latter. 

The official HOA Management website explains that the biggest reason for this is that “HOAs that file this form [1120] experience a lower tax rate (15%) for the first $50,000 of net income.”

The downside to this, though, is that your Association’s entire net income is subject to taxation – even money that is unused at the end of the tax year must be reported. In short, using Form 1120 may save you money but typically requires the assistance of a qualified tax professional. 

Are HOAs tax-exempt organizations?

As a general rule, HOAs are not tax-exempt even if they are set up as nonprofit organizations. In very rare instances, a homeowners’ association might be able to secure exemption status. Per the IRS, specific criteria must be met.

The burden of proof taken on by any HOA wishing to become tax-exempt includes proving it doesn’t perform exterior maintenance on any privately-owned homes and that the land it does maintain is for the good of the entire community (i.e., a playground, fishing pond, or soccer field.)

Do HOAs need to file state taxes?

The answer to this question depends solely on what state your HOA is based in, but the answer is typically yes. Every state, however, has its own rules and regulations that pertain to homeowners’ associations.

In the State of California, for example, an HOA might be able to obtain tax-exempt status on the state level but not the federal level. This holds true in numerous states, including Massachusetts, Florida, and Texas. 

When are HOA taxes due?

Much like personal tax returns, HOA taxes are due on the 15th day of the fourth month after your Association’s tax year ends. Since the majority of HOAs start their tax year on January 1, this is typically the traditional tax day of April 15. 

 If, though, your fiscal year ends on June 30, you will need to file by the 15th day of the third month after the end of your tax year. The IRS offers additional resources to help

Do you feel more confident about HOAs and taxes now?

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Gordon W. McNamee

Gordon W. McNamee

Gordon W. McNamee is a Certified Public Accountant (CPA) based in Rancho Cucamonga, CA. Gordon W. McNamee can assist you with your tax return preparation, payroll, accounting and tax planning needs. <br /> <br /> 2021 is Gordon W. McNamee, CPAs 38th year in the profession. As as a former IRS agent (1984 through 1987), Gordon has been in public accounting since 1987. Gordon specializes in individual, corporate, HOA, trust, estate and payroll taxes. He also prepares financial statements and provides accounting & bookkeeping services. He enjoys making his clients feel at ease while providing a personalized professional service.

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