Tax Planning

Your Most Important HOA Tax Questions Answered

Your Most Important HOA Tax Questions Answered

If you’re on the board of your neighborhood’s homeowners’ association, you might have questions about how taxes work.

Those who are new to the world of HOAs sometimes don’t realize that these organizations even have to pay federal taxes – but they do. As a matter of fact, there are numerous rules and regulations that apply to HOA taxation.

Whether this is your first year as a homeowners’ association board member or you simply need a refresher about common inquiries, you’ll find answers to all of your most important HOA tax questions below.

Real-Estate-GettyImages-1176556911-2500
Credit: Getty Images

How does the IRS classify HOAs?

The Internal Revenue Service (IRS) considers HOAs to be a business for tax purposes. These organizations are classified as non-profit organizations, but this does not mean they are tax-emempt.

It is worth pointing out, however, that just because your HOA files a tax return does not mean you will actually owe money to the government.

Can HOAs be tax-exempt?

Certain non-profits, such as religious institutions, are tax-exempt. As previously noted, though, homeowners’ associations do not necessarily fall into this category. In reality, HOAs are very rarely granted tax-exempt status.

In order to receive this classification, the organization must prove to the IRS that they do not provide any form of exterior maintenance for privately-owned residences. In other words, all of the land that the homeowners’ association oversees must be for public use.

This can include things like neighborhood ball diamonds, playgrounds, and walking paths.

GettyImages-1469078332_resized_playground
Credit: Getty Images

Are there different types of HOAs?

The IRS recognizes three different HOA categories.

Condominium management associations – These organizations manage and maintain condominium complexes with units that are intended to be homes, either primary residences or vacation residences, for individuals or families.

Residential real estate management associations – These organizations manage and maintain neighborhood developments, often suburban subdivisions, that are comprised of single-family homes. They may oversee a neighborhood clubhouse and other amenities.

Timeshare associations (that are not qualified as condominium management association) – These organizations manage and maintain property in a timeshare development that is comprised of apartments or condominiums for use by timeshare assocation members. A timeshare association cannot be classed as a condominium management association.

What IRS tax form should HOAs file?

HOAs should file IRS Form 1120-H, officially titled “U.S. Income Tax Return for Homeowners Associations.”

The taxable income of a homeowners’ association that files Form 1120-H is taxed at a flat rate of 30% for both condominium management associations and residential real estate associations. Timeshare associations pay a federal tax rate of 32%. There are not special capital gains tax rates for HOAs.

Tax-form-1120-GettyImages-896229342-2100
Credit: Getty Images

If your HOA board has any questions about filing taxes, it would be beneficial for you to seek help from a local tax professional or CPA who specializes in working with homeowners’ associations. He or she may be aware of tax strategies that could reduce your tax liability year after year.

share this post
Search for matches...
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.

GORDON W. MCNAMEE, CPA
22 reviews

California

Recommended Professionals

In the face of economic uncertainty, TaxBuzz is the industry's most up-to-date tax information.

Join 60,000 who get our weekly newsletter. No spam.

We know tax and accounting issues are complicated.

Do you have additional questions on this topic for this author?

Related Posts

Latest Posts