What is a 1120-H filing? (In honor of tax day)

There are normally two options for most community associations to file their federal tax returns. The 1120-H tax form is a special filing available only for certain homeowner associations. The 1120-H tax form is authorized under Internal Revenue Code §528 (26 U.S.C. §528). Only certain homeowner associations qualify to file an 1120-H tax form. A homeowner association qualifies if:

1. it is organized and operated to provide for the acquisition, construction, management, maintenance, and care of association property;


2. substantially all of the units (85%) must be used for residential purposes.


3. it elects to have the section apply for the taxable year;


4. no part of the net earnings of the association inures to any private shareholder or individual;


5. 60% or more of the association's gross income consists solely of amounts received as membership dues, fees, or assessments from owners of residential units, residences or residential lots (exempt function income); and


6. 90%or more of the association's expenditures for the taxable year are expenditures for the acquisition, construction, management, maintenance, and care of association property.

If the homeowners association qualifies under Section 528, the dues or assessments received from property owner-members of the association are exempt from taxation if the dues and assessments are used for the maintenance and improvement of its property. All non-exempt income is taxed at the 30% tax rate from the first dollar of income.

If the association does not elect to file an 1120-H tax form or is not qualified, it must file an 1120 tax form. Under Internal Revenue Code §277 (26 U.S.C. §277), the income of homeowner associations are treated the same as a corporation. Membership dues or assessments are taxable subject to applicable deductions and adjustments.