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.