Serving on a homeowner's association (HOA) board comes with plenty of responsibilities like budgeting, meetings, maintenance decisions, and yes, taxes. While HOA taxes may not be the most exciting topic on your agenda, understanding the basics can save your community time, stress, and potential penalties.
Whether you’re a seasoned board member or newly elected, this guide breaks down what you need to know about community association tax filings.
Do HOAs Have to File Tax Returns?
Short answer: yes.
While HOAs are designed to be not-for-profit organizations, they are not tax-exempt. That means your association is required to file a federal tax return every year, following state tax and federal IRS rules for corporations.
Here’s the good news:
Filing a return doesn’t automatically mean your community association will owe taxes. Many associations end up owing little to nothing, especially if income and expenses are handled properly. Still, skipping the filing altogether can lead to penalties, so it’s not something boards can afford to overlook.
What Tax Forms Do HOAs Use?
For federal purposes, a community association usually meets the standards set under section 528 of the IRS Code, allowing function-related (owner assessment) income to be tax-exempt. These HOAs generally have two federal tax form options, and choosing the right one matters.
Form 1120
Form 1120 (sometimes called the long form) is the standard U.S. corporate income tax return. It’s more detailed and complex (and therefore more expensive to prepare), requiring careful tracking of income, expenses, and deductions. Some associations benefit from filing this form, depending on whether the association recorded surplus non-exempt income (e.g., interest on CDs or withdrawals from the reserve account). In certain cases, IRS Revenue Ruling 70-604 can be used to reduce tax liability resulting from excess member income for associations that file the long form 1120 federal tax return.
Form 1120-H
Form 1120-H (sometimes called the short form) is designed specifically for homeowner’s associations, which is why many HOAs choose it. It’s more straightforward and often easier to complete. The tradeoff is that it has a fixed standard deduction and a higher flat tax rate. If your association is professionally managed, a portion of the management fees paid by the association is deductible against excess income.
Every community is different, and there’s no one-size-fits-all answer. A qualified Certified Public Accountant (CPA) can help your board determine which form makes the most sense for your association each year.
What Information Will We Need to File?
Preparing your HOA’s tax return is much smoother when your financial records are organized and up to date. Your CPA will likely ask for documents from the previous fiscal year, including:
- Income statements and balance sheets
These show the association’s financial activity and overall position. - Bank statements
Used to verify income, expenses, and account balances. - Approved budget
Helpful for context and comparison to actual spending. - Invoices and receipts
Supporting documentation for expenses claimed on the return. - Reserve fund documentation
Records related to reserve contributions and balances are especially important for HOAs. - Resolutions
The CPA may also ask about board policies, e.g., the association’s investment policy, or records of the membership vote under IRS 70-604
If your HOA works with a professional management company like CAMS, much of this information is already compiled and readily available, making tax season far less stressful for board members.
When Are HOA Tax Returns Due?
The deadline depends on your association’s fiscal year.
- Fiscal year ending December 31:
Your federal tax return is due April 15. - Fiscal year ending June 30 (or another date):
Your federal tax return is due 3 ½ months after the fiscal year-end. Requirements for estimated tax payments, filing dates, and extension options can vary, so it’s best to confirm your specific due date with a tax professional. Missing a deadline, even if no taxes are owed, can result in unnecessary penalties.
Do We Need a CPA Who Specializes in HOAs?
Because tax rules are complicated, the answer is yes.
HOA taxes come with unique rules, terminology, and reporting requirements. Working with a CPA who regularly handles HOA tax filings can make a significant difference. When evaluating a CPA, consider asking:
- Do you have experience working with homeowner’s associations? A CPA’s knowledge specific to HOAs ensures the association’s income and expenses will be correctly classified for purposes of determining tax liability and maximizing deductions.
- Do you have the capacity to take on a new client right now?
Timely filing matters. You want to be confident your CPA has the bandwidth to do the work correctly and on schedule.
The right professional partner helps protect your association, keeps filings compliant, and gives your board peace of mind.
Final Thoughts
HOA taxes may not be glamorous (are any taxes glamorous?), but they’re an essential part of responsible community governance. Understanding your requirements, knowing which forms to use, keeping organized financial records, and working with experienced professionals can make the process far more manageable.
About Community Association Management Services
In business since 1991, CAMS has grown to become North and South Carolina’s premier community management company. With experienced local managers in each of its nine regions, CAMS provides innovative solutions to the community associations it serves. To learn more, visit www.camsmgt.com/choose-cams.
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