This site provides information regarding homeowners association taxation on forms 1120 and 1120-H. For information on tax exempt homeowners associations, go to our site specifically dedicated to tax exempt associations. We hope you find this information helpful in understanding the complexities of the various Internal Revenue Code (IRC) Sections and other rulings that affect homeowners associations. The one thing we can promise you is that this area of taxation is far more complex than it appears on the surface.
This site is maintained by Gary Porter, CPA, generally regarded as an expert in homeowners association taxation. See information on Gary Porter CPA at the bottom of this page.
Overview of taxation of homeowners associations
There are two basic options for most associations for federal income tax purposes; 1) elect to file Form 1120-H, or 2) file Form 1120. According to recent IRS statistics, the majority of associations and practitioners have taken the easy way out; approximately 70% of associations filed Form 1120-H, with the remainder filing Form 1120.
The guidance for filing Form 1120-H is reasonably well laid out in IRC Section 528 and the related regulations. There is little guidance, however, for filing Form 1120 for a homeowners association. This lack of guidance is the main reason so many practitioners elect to use Form 1120-H rather than Form 1120. The attached article discusses in detail the existing guidance and compares the two filing methods.
At issue is the fact that when filing Form 1120-H, the flat tax rate is 30%, whereas the association, in most instances, would pay only a 15% tax rate on substantially the same income when filing Form 1120, on taxable income up to $50,000.
Articles about taxation of homeowners associations
1) Taxation of Homeowners Associations – a Concise Guide
2) Why do homeowners associations have to pay taxes?
3) Correcting Errors on Prior Year Tax Returns
Background information on Gary Porter, CPA
Gary Porter, CPA is licensed by the California Board of Accountancy and the Nevada Board of Accountancy. His CPA practice is limited to Common Interest Realty Associations, including homeowners associations, condominium associations, timeshare associations, fractional ownership associations, and condo hotel associations. Mr. Porter is the co-author of the PPC (Practitioners Publishing Company) Guide to Homeowners Associations and Other Common Interest Realty Associations, and Homeowners Association Tax Library. He is also the author of more than 200 published articles on financial matters related to homeowners associations. He has been working with homeowners associations since 1976.
Gary Porter CPA website
Info on Revenue Ruling 70-604 site
Link to HOA exempt association site
Association Tax Services - Tax preparation services for homeowners associations
HOA Pulse - Resource site for homeowners association industry with current news and articles