Homeowners Associations and Taxes

Tax time is looming, and although most condo associations likely have already finished or are deep into planning, now is a good time to think about next year. Filing with the IRS is required, even if the homeowners association hasn’t made any money, but the way you file can generate significant savings. Read on to learn about the different ways to file and the benefits of each.

1120-H

This is the simplest form to file as a homeowners association and is best for those associations that don’t generate much taxable income. The main drawback of this type of filing is the flat 30% tax rate. In order to file this form, 85% of the building’s units must be residential, 90% of the association’s expenses must be for property maintenance, and 60% of the association’s income must be from exempt function income, like membership dues or real estate taxes.

Corporate Filing

This method of filing is more flexible with expense allocation and has lower tax rates, but calculations can be complex. If your association charges a lot of non-exempt fees, like club dues to non-residents or charges for rented units, this is a good option.

Non-Profit Filing

Non-profit filing is the least frequently used method, simply because it isn’t easy to get non-profit status. There’s a lot of paperwork and research involved, and close attention has to be paid to bylaws to make sure they are worded correctly. If your association owns and maintains property that the public can use, like a beach, road, or park, non-profit status can be granted.

Talk to your accountant about which scenario works best for your property. Different circumstances might require different types of filing, and circumstances can change every year.

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