Tax Return

What is an HOA tax return?

Most homeowner’s associations are nonprofit entities. However, federal law classifies them as corporations, meaning they must file a yearly HOA tax return. Tax form 1120-H allows HOAs to exclude exempt income such as membership dues and assessments from taxable income. It also lets HOAs report non-exempt income like interest earned on bank accounts. If at least 60% of an HOA’s gross income comes from resident assessments and at least 90% of its expenses are for upkeep and maintenance,  it’s exempt from federal income tax. It’s very common for HOAs to pay little or no tax.

Why is a tax return important to an HOA?

While filing a tax return may seem like a formality for a nonprofit entity, it’s a critical step in the financial management of the community. Filing an 1120-H keeps HOAs in good standing with the IRS and secures their status as a nonprofit organization. Failing to file could lead to fines and damage to the HOA’s reputation.

Filing a tax return each year builds homeowners’ trust in the HOA. It shows that the board is properly managing the community’s finances. It also helps board members during yearly budgeting meetings and comes in handy during financial audits.

How can you use “HOA tax return” in a sentence?

The community’s board members discussed the HOA tax return process at the last meeting.