Federal Form 1120-H, 990 or 1120? Changing Your Condominium's Tax Filing Status Can Net Savings

For the uninitiated, tax filing for something as complicated as a community association can seem more than daunting. Fortunately, there are multiple options for homeowners associations, and with a little background knowledge, you can take the first steps toward making the right choice for your particular situation.

For starters, you should know that no matter how your condominium association is legally organized –whether as a trust, a corporation, or a Homeowners Association (HOA) – it doesn’t affect your filing status or the need to file tax forms annually to the federal government.

Even if your association has not generated any income and owes no money to the IRS, it’s required to file a federal tax form each year. And though a great many condominium associations are run as not-for-profit entities, from the viewpoint of the IRS, associations are considered corporations.

Under federal tax laws, condominium and homeowner associations have the advantage of choosing among several filing options – each with its own accompaniment of regulations and qualifications – and the ability to alter that status from year to year to their benefit. The two most common filing options to choose from are the ‘ExemptMethod’ of form 1120-H, or the ‘Corporate Method’ of form 1120.

A third and less commonly-used method is to file as a nonprofit corporation (form 990). This filing status can be of great advantage to an association, though it is much harder to obtain and difficult to change.

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44 Comments

  • What state tax form do you file in Mass when you file a 1120-h.
  • A helpfull overview. Thank you
  • It seems impossible to find good instructions for filling out 1120-H. Can Financial Management Account Fees be deducted to offset dividend earnings??
  • We are a FL. condo association whose board changed our IRS status to homeowners. These are vacation units and 4 owners use them during winter. Approx half are rented to winter residents and summer vacationers. Association does not receive any rental income. Would we be considered residential.l
  • I am the controller for a mangement company and need to prepare the tax returns for the associations we manage. Is there online training available for these form?
  • Our budget for 2009 was $37,260.00, we had 28 expenditure transactions, we have 35 homes in our HOA. What should we expect to pay a Professional to complete our 1120-H? The teasuer uses Quicken to issue quarterly reports to the HOA Board members, thus documentation is well organized.
  • I am the treasurer for a HOA and need to prepare the tax returns for the associations we manage. Is there online training available for these form?
  • Here is a location for the 2009 Instructions www.irs.gov/pub/irs-pdf/i1120h.pdf
  • If all our HOA income is exempt and all expenses is maintenance, how do I show this on line B and C? Total income 15,000 and total expenditures 10,000.
  • What happens to excess asscessments since they are not taxable, Are they returned to the members.
  • If I have a homeowner association that has both residential and commercial units and I collect only assessments and pay out only normal property expenses, how do I file with the IRS if the ratio of the commercial and residential units are 50/50 and not 85% residential? I appreciate your assistance.
  • I did not see a respons to Janes question. My question is, are accounting fees/professional fees considered a qualifying expenditure deductible on line B of Form 1120-H?
  • i am about to file income tax for my association. where can I get a sample of filled in copy?
  • we are a POA that is incorporated as a not for profit corporation and we are a POA assoc. if we sell property(2 recreation lots) to use the profit to build a community clubhouse, are we taxed on the net sales gain of the property? and if so, how can we best minimize the amt. of taxes apid?. thanks-
  • How can a concerned unit-owner gain any information she requests dealing with the above issues; when she is unable to get copies or answers dealing with how the association handles it's tax returns ?
  • I am the Finance Chair of an HOA that now files a Form 1120, and has Net Operating Loss Carry Forwards. We operate three restaurants and a theatre primarily for the benefit of the 4,500 residents who pay an annual maintenance fee for upkeep of all of the facilities, including a subsidy for these operations. The restaurants and theatre are treated as a business amenity and operate at a 10-12% loss, subsidized by the resident fees. Are revenues from these amenities considered exempt income for purposes of calculating the 60% gross income criteria for filing an 1120H? We also contribute 22% of our annual dues toward our Reserve, or sinking fund. Are these reserve constributions (except the interest earned) considered tax-exempt for either the 1120 filing or a potential 1120H fililng?
  • Interesting and informative article. I'd like to see an article that addresses a point similar to the one raised in Stan Buckland's post -- involving the tax implications of payments into a capital reserve fund for an OFFICE condominium. My understanding is that condo fees used for operations/maintenance are tax deductible as business expenses, while payments to the reserve fund are not deductible up front but may be deducted in the future as capital expenses are incurred (either directly or on a depreciation schedule). Am I wrong about this? I'm dealing with an office condo board that has collected several years worth of operating/maintenance fees from the owners -- who have presumably all been deducting 100% of these fees on their own tax returns. Just recently, the board announced that $X of the operating/maintenance account (dating back 5-7 years) is now being considered a "capital reserve fund" -- though no such separate fund exists and all of these monies are in a commingled account. Do I now need to file 5-7 years of amended tax returns for my office unit? Do these people even know what they're doing?
  • If the condo assoc. is for business office property; what form must be filed? Are the dues exempt function income?
  • Has the Form 1120-H been replaced by Form Section 280H (for a Personal Service Corporation? What should a non-profit small HOA use to file for 2010?
  • what irs form do we use for not for profit homeowners association - townhomes
  • I'm getting discouraged and frustrated, to think that when I write for a form 1120-H, all I get is a letter back to me to go to the same website and print it off. The error message says"THE FILE IS DAMAGED AND COULD NOT BE REPAIRED". I presume the form doesn't need to be mailed anymore!?
  • I finally located the 2010 form on the IRS website. Apparently it was being revised. It's at www.irs.gov/pub/irs-pdf/f1120h.pdf and the instructions at www.irs.gov/pub/irs-pdf/f1120h.pdf
  • I live in MA....We do not collect any monies or fees...Whateve comes up, we put together and pay...It's deeded as a condominium however, it's only 2 units...duplex. Question is, we/I received some damage to my side and put an insurance claim. The check was issued to the condo so I had to set up an account to deposit the money. Then wrote out the checks to pay for the repairs. All the money that came in for the claim was documented and paid out for the repairs. No profit, no balances, etc...But I believe the IRS says I must file a 1120??? Also, I have owned my half since 2003. The building was built in 1988 or so and I don't beleive anyone has ever filed. (prior owners) (both sides have always been privately owned.)
  • emily condo. assoc. inc. on Tuesday, April 05, 2011 1:36 PM
    Looking for answer for Fedreal taxes on commercial condo association which receives only maintainace every month to maintain the property.if all funds are not used in end of calander year does condo association have to pay fed tax on remaining maintanace funds Plz. advice yes/no & why?
  • Interested to hear an answer to Mass Man above. In a similar situation, 2-unit privately owned, no fees.... we pay as things come up. What's the scoop?
  • Form 1120-H on page 1, lines (either) C or D requires an expense number, one being Total expenditures for the 90% test and the other being Total expenditures. In an 1120 filing the filer is required to DETAIL all expenses on its Page 1, as well as detailing the "Other Expenses", as well as, to a smaller extent possibly, detailing its Cost of Goods Sold on Page 2. Is it your feeling that, on a 1120-H, neither lines C or D need a further schedule detailing what the Associations expenses are for the year?
  • can a HOA be in the form of a partnership, if so can that partnership file form 1120-h instead of form 1065
  • The HOA Board of Directors didn't pay State or Federal taxes for 3 years. They got caught. The HOA is responsible for the taxes, but who is responsible to pay the interest and penalty ?
  • If a non profit condo association takes title to a unit due to maintenance not being paid, is any profit on the sale due its taxes if the unit is sold to an existing member? What if it is sold to an outsider?
  • IRS Revenue Ruling 70-604 appears to me to only apply to condominiums. Does it mean that that it doesn't apply to cooperatives housing organizations? Also, does anyone know--and can provided references to that knowledge--what regulations for Reserve Studies apply to a cooperative that is incorporated in one State but is located in another one?
  • I'll answer my own question as I've paid for legal advice. I've been informed by a 'legal expert' that regulations that apply to reReserve Studies are those of the State in which the cooperative is located.
  • I have the exact same circumstances as Mass Man, 2 unit (duplex) condominium, condominized in 1989. No funds collected, whatever needs to be done to the property is collected and paid my me and the other Unit Owner. Had some damage which an insurance claim was put in on and paid to the trust. Repairs made. Applied for EIn to open a bank account and found out about the 1120H. Does the IRS require us to to complete an 1120-H under these circumstances? What will happen if we do not file one to the IRS? And if we do need to file the 1120-H what year would I do it for? Woudl it be the year the bank acocunt is opened (we have not opened yet) or the year when the EIN was obtained (2011)? Thank you.
  • out assoc is resp for maintenance of special driveway leading to 4 residents and an assoc park area. When we pay $100 for snowplowing, and in accord with bylaws, 75% is assessed the 4 owners, and the 25% remains as assoc expense. since all residents have access to the park area. (A) On our expense statement, should we show the net amount 25% (amt the assoc is resp for, as the total expenses -which is the basis for annual dues assessments to all owners) or, (B) show the 75% as an assessment in income section and 100% as expense on the finl statement.? Ya, I know, "big deal." thanks, Don
  • I am attempting to do the taxes for my HOA on form 1120H. I feel there are deductions that can be taken and possibly a refund to the association. However, I can't find a tax preparation software that allows me to enter information for free, allowing me to see what we may have, or not, and then pay if this is the route for us to take. Is there a software that will allow me to enter information for free and pay if I file for this form?
  • Don - I'd go with showing the 75% as an assessment and the whole cost as an association expense. Sure does seem a strange way to cover plowing, which I assume is being done to common areas.
  • What if the Condo Association is 100% commercial (medical offices)? Can you obtain tax exempt status from the IRS, or do you need to file an 1120?
  • What if a HOA has no commonly owned property, but the covenants allow a access right of way for a road entry that should be maintained by the developer or an association? Do those expenses qualify 90% of the association’s expenses for the tax year must consist of expenses to “acquire, build, manage, maintain, or care for its property", since the HOA truly does not have any of its own property? And, if a surplus is built up over the course of many years and not used for the maintenance of that access road right of way, at what point does that excess money from each year either have to be used, refunded, or counted as income?
  • If homeowner association held property is purchased by the government for common use area, do proceeds qualify as exempt income?
  • Can an HOA take a tax deduction for condo fees which it pays itself for rental property it owns within the condo complex?
  • Condo assoc incorp 30 yrs ago & has never filed a tax return - not a form 1120-H or form 1120. What should we do?
  • What should we do after not ever filing for 25 years since we were not aware of a need to file? We would have owed no tax during all those years. All our income is exempt function income.
  • What if there is no taxable income but there are deductible expenses such as tax preparation fees. Does the HOA receive a tax refund? We are filing the 1120H for 2014.
  • We now file 1120H. Have one lot in development association bought 15 years ago for 10,000 dollars. Now some homeowners want to sell to put money in Capital Reserve Fund. Say we realize 20,000 from sale, what IRSform do we send in; how do we show this profit, what else should we do? Thanks!
  • I have just been appointed Treasurer of my Association and I immediately asked for 1120H filings. It appears that no filings have been made for 12 years. Will I be able to back file those returns using the election? It appears that we have lost the right to elect by failing to timely file. This must happen all the time.