Tax Filing
The process of preparing and submitting tax returns to federal and state tax authorities. Most HOAs file federal taxes using IRS Form 1120-H, which allows a flat tax rate on non-exempt income, or Form 1120, which may offer tax advantages depending on the association financial situation. HOAs are generally exempt from income tax on assessment income used for the association exempt purposes but must pay tax on other income such as interest and rental revenue.
Common Misunderstanding
HOAs are not tax-exempt organizations like charities. They are taxable entities that receive a limited exemption for assessment income. Non-exempt income such as bank interest and facility rental fees is subject to federal and state income tax.
Frequently Asked Questions
Do HOAs pay income tax?
HOAs are generally exempt from income tax on assessment income used for the association's exempt purposes. However, they must pay tax on non-exempt income such as interest, investment gains, and rental revenue from common area facilities. Most HOAs file IRS Form 1120-H, which taxes non-exempt income at a flat 30% rate but simplifies the filing process.