What Your HOA Management Needs to Know About an 1120H

With all the responsibilities your self managed HOA has to take on, it’s easy to overlook taxes. After all, an HOA is set up to support its community, not operate like a traditional business. 

Most HOAs aren’t tax-exempt. The good news is that filing HOA taxes is typically a piece of cake. The 1120H is one of the easiest forms the IRS has, and with comprehensive HOA bookkeeping, you can ensure this gets done on time each year. 

And while the 1120-H is straightforward, there are some things board members should know. To help you out, we’re breaking down some of the essentials surrounding HOA taxes and how professional bookkeeping services can automate the process. 

Understanding the 1120H Form 

The IRS designed the 1120H form specifically for homeowners associations. It’s used by qualifying HOAs to report income and expenses. 

The qualifications are about as self-explanatory as the form itself. To use the 1120H, your HOA must meet the following requirements: 

• It must be operated for the purpose of providing construction, acquisition, management, maintenance, or care of the property. 
• At least 85% of its units must be used for residential purposes. 
• At least 60% of its gross income must be exempt, meaning it comes from membership fees, dues, or assessments from owners. 
• HOA net earnings must not benefit shareholders or private individuals. 

If your HOA doesn’t meet these qualifications, you’ll need to file the 1120 tax form instead – the U.S. corporation tax return. However, most HOAs don’t have taxable income and can file the 1120H. As a qualifying, self managed HOA, you can make filing (and remembering to file) easier with professional bookkeeping services that automate the process.  

Common Questions and Concerns

Though it’s one of the simplest IRS tax forms, self managed HOA board members still need to know a few things. This knowledge will give you peace of mind and ensure you don’t miss crucial details. 

When is the Filing Deadline?

You must file your 1120H by April 15th each year. Missing the deadline could result in a penalty of 5% of the unpaid tax liability for every month the return is late. 

If you need more time, you can file a six-month extension using the IRS form 7004. However, filing on time will save you stress down the road so you can concentrate on managing your community. 

What Qualifies as Non-Exempt Income?

HOAs only have to pay taxes on non-exempt income. This includes, but is not limited to: 

• Income from renting property the HOA owns
• Payments collected for things like vending machines or snack bars
• Investment income 
• Fees charged for the use of facilities for special events
• Any payments received from non-residents 

It’s important to keep accurate records of all non-exempt income. You can opt to do this yourself or use digital bookkeeping services that help ensure accuracy and allow you to keep a close eye on your finances. 

Can HOAs Take Advantage of Tax Deductions?

Your association may be eligible for tax deductions when filing your 1120H. If you’re unsure whether you qualify for any, it’s important to speak to an accountant. 

Common deductions may include: 

• Payments made to property management companies 
• Premiums paid on insurance policies
• Fees paid to attorneys, accountants, or other professionals
• Costs related to property maintenance or repairs 
• Utility costs for common areas 

Deductions may vary based on your association’s tax status and the state you operate in. It’s crucial to keep records of expenses throughout the year to ensure you claim all relevant deductions.  

What Should I Do if My HOA Failed to File its Taxes?

If you realize your association didn’t file its taxes for previous years, don’t panic. The IRS can tell you whether you can file an 1120H for the missed years. 

The process may seem overwhelming, but a tax professional can help you file overdue tax returns to ensure the HOA is compliant. 

Benefits of Filing a 1120H 

Along with tax exemptions, filing the 1120H comes with some attractive benefits. That’s why it’s so important to file accurately and on time. 

If you’re a self managed HOA board member, you can ease the stress of filing by using specialized bookkeeping services that give you full transparency over your data. This ensures your association files correctly and takes advantage of the following benefits. 

Staying Compliant 

The IRS has regulations that govern taxation for HOAs. When you file the 1120H, you’re complying with federal tax law. This will help your association avoid tax audits and financial penalties.

Simplicity 

Because the IRS made the 1120H form specifically for homeowners associations, the tax requirements are easy to understand. Unlike many tax forms, the 1120H is only a single page. Self managed HOA board members can easily file it themselves if they choose.    

No Alternative Minimum Tax (AMT)

The AMT is a system that requires individuals or companies with a high income to pay a minimum tax amount, regardless of their deductions or exemptions. This doesn’t apply when filing the 1120H form. 

Things to Know at Tax Time 

While filling out the 1120H is much easier than other tax forms, it still requires attention to detail and accurate reporting. Here are some essential points to keep in mind. 

Preparation

Before filling out your 1120H, gather all the necessary documents. This will ensure a smooth process. Commonly used documents include: 

• Bank statements 
• Expense reports
• Invoices 
• Maintenance records 
• Insurance premiums
• Fees, dues, and other charges collected from residents 

You’ll also need the HOA’s Employer Identification Number, the number of members in the association, and the total number of units in the community. 

Filing Considerations 

Most self managed HOAs can opt to file their taxes on their own. As we’ve learned, the 1120H form is relatively easy. 

However, there are other responsibilities to consider. For starters, you’ll need to reconcile your HOA’s books as of December 31st of each year. This ensures everything is up to date and you’re not scrabbling to gather the documents you need as tax time approaches. 

You’ll also need to remember to issue a 1099 tax form to vendors that the association paid over $600 to during the year. This could be landscapers, maintenance professionals, or contractors. 

With these considerations in mind, tax season may start to seem a bit stressful. That’s why many associations use HOA bookkeeping services to ensure a painless tax filing. 

Put Our Bookkeeping Services to Work for You 

As a self managed HOA board member, you’re probably more concerned about the day-to-day management of your community than filing taxes. And while it helps to understand the tax requirements of your association, there’s no reason to lose sleep over it. 

PayHOA makes bookkeeping easy with our all-in-one software that allows you to manage your community online. With our bookkeeping services, you maintain full control of your finances and enjoy the convenience of timely reporting. We’ll also take care of your 1220H and 1099 tax preparation and filing.  

Find out how easy it is to streamline your HOA’s operation. Sign up for a free 30-day trial and discover what PayHOA can do for you.  

---

PayHOA offers an HOA management software solution for HOAs of any size or managerial priorities. To find out if PayHOA fits all your HOA management needs, try our software free for 30 days.