What is Form 1120-H?
Form 1120-H, U.S. Income Tax Return for Homeowners Associations, is filed by homeowners associations, or HOA, as their income tax return to take advantage of certain tax benefits based on Section 528 of the Internal Revenue Code. According to the Internal Revenue Service (IRS), homeowner associations could either be condominium management associations, residential real estate management associations, or timeshare associations. Tax benefits allow associations to omit exempt function income from their gross income. Exempt function income will include membership dues, fees, and assessments.
To qualify as a homeowner association, you must have the following requirements:
- At least 60% of your gross income should be exempt function income.
- At least 90% of your expenditures for the tax year must be for your association’s business.
- There should be no private shareholders who benefit from the earnings of your association.
- At least 85% of the housing units should be residential.
- You must file Form 1120-H.
If your association fails to file Form 1120-H or does not meet the above requirements, you will be required to file Form 1120, U.S. Corporation Income Tax Return, instead and you will not be able to receive tax benefits. Form 1120 does not have the same deductions as Form 1120-H.
When to file Form 1120-H?
You must file Form 1120-H on the 15th day of the 4th month after the end of its tax year — April 15. If your association has a fiscal year ending on June 30, you must file the form by the 15th day after the 3rd month after the end of the tax year. If the due date happens to fall on a Saturday, Sunday, or a legal holiday, you can file the form on the next business day.
How to fill out Form 1120-H?
Enter the period or tax year covered.
Name and Address
Enter the true and legal name of your association, its complete address, and your Employer Identification Number (EIN). Make sure to include the suite, room, or another unit number after entering the correct street address. If your association has a P.O box, input the box number.
Employer Identification Number (EIN)
Enter your association’s EIN. If your association happens to lack an EIN, it should apply for one.
Final Return, Name Change, Address Change, Amended Return
If your association ceases to exist, check the “Final return” box. If your association changed its name, check the “Name change” box. As for associations who changed their addresses since their last filed return, check the “Address change” box. If you want to amend a Form 1120-H you previously filed, check the “Amended return” box.
Classify what type your homeowner association is. Check the box which corresponds with the correct type of association.
- Condominium Management Association
- Residential Real Estate Association
- Timeshare Association
At least 60% of your gross income should be exempt function income.
At least 90% of your expenditures must be for your association’s business. It must consist of expenses for acquiring, building, managing, maintaining and caring for the property. Current operating and capital expenditures must be included.
According to the IRS, this must include the following:
- Salary for an association manager or secretary.
- Expenses for security guards and property caring.
- Current operating and capital expenditures for recreation halls, tennis courts, swimming pools, etc.
- Replacement costs.
Expenditures for the property that is not association property and investments or transfers of funds held to meet future costs should not be included.
Enter the total expenditures of the association for the tax year. This must include the expenditures related to exempt function income.
Any tax-exempt interest received or accrued must be shown in this section. All exempt-interest dividends you received as a shareholder in mutual funds or other regulated investment companies should be included.
Line 1. Dividends
Enter the gross amount of your dividends. Dividends are distributions of cash by a company to its shareholders.
Line 2. Taxable interest
Enter the gross amount of your taxable interest. Taxable interest is the money you’ve earned on investments for which you’re required to pay taxes.
Line 3. Gross rents
Enter the gross amount of your rental income. Rent income is the amount of rent stipulated in your lease.
Line 4. Gross royalties
Enter the gross amount of your royalty income. In royalties, post-production costs will not be deducted from the royalty owner’s royalty before the distribution.
Line 5. Capital gain net income (attach Schedule D (Form 1120))
Enter the capital gain net income. This is the excess of gains from sales or exchanges of capital assets over the losses of said sales or exchanges.
Line 6. Net gain or loss from Form 4797, Part II, line 17 (attach Form 4797)
Enter the net gain or loss. This is the income you’ve received from the sale of goods subtracted by how much money was spent on production or acquisition.
Line 7. Other income (excluding exempt function income) (attach statement)
Enter your other income that does not come from your association’s main business.
Line 8. Gross income (excluding exempt function income)
Enter your gross income. This is the total income from all of your sources listed above.
Line 9. Salaries and wages
Enter the salaries and wages that you and your employees agreed upon for their work.
Line 10. Repairs and maintenance
Enter the amount used for repairs and maintenance in the association.
Line 11. Rents
Enter the amount for your rental costs in the association.
Line 12. Taxes and licenses
Enter the amount of your business licenses, renewal fees, real estate taxes, and other types of taxes and licenses.
Line 13. Interest
Enter the amount you’ve incurred for borrowed funds.
Line 14. Depreciation (attach Form 4562)
Enter the portion of your fixed assets that have been considered consumed in the current period.
Line 15. Other deductions
To be deductible in computing the unrelated taxable income, your expenses, depreciation and other similar items must qualify as items of deduction and must also be connected directly with the produced gross income.
Line 16. Total deductions
Enter the total of your before-tax deductions and after-tax deductions.
Line 17. Taxable income before specific deduction of $100
Enter your resulting net non-exempt function income.
Line 18. Specific deduction of $100
The Home Owners Association will deduct $100 from your resulting net non-exempt function income.
TAX AND PAYMENTS
Line 19. Taxable income
Enter the total amount of your taxable income.
Line 20. Enter 30% (0.30) of line 19. (Timeshare associations, enter 32% (0.32) of line 19
You must multiply by 30% the amount on line 19, which is your taxable income. For timeshare associations, you must multiply the amount by 32%. If the amount on line 19 happens to be zero or less than zero, you must enter -0- on this line.
Line 21. Tax credits
The association may be able to qualify for the following tax credits:
- Foreign tax credit (Form 1118).
- General business credit (Form 3800).
Enter the applicable tax credits on this line and attach the needed forms.
Line 22. Total tax
Enter the total amount of recapture. The amount of any low-income housing credit, qualified electric vehicle credit, or new markets credit the association needs to recapture must also be included here.
Line 23 a. 2019 overpayment credited to 2020
b. 2020 estimated tax payments
d. Tax deposited with Form 7004 or Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns
e. Credit for tax paid on undistributed capital gains
f. Credit for federal tax paid on fuels
g. Total payments
Add lines 23c through 23f and input the total amount on line 23g afterward.
Line 24. Amount owed. Subtract line 23g from line 22
If for some reason you can’t pay the full amount owed, an online installment agreement can be applied for.
The conditions for applying for an installment agreement are the following:
- You are not able to pay the full amount entered in line 24.
- The amount you owe is $25,000 or less.
- You are able to pay the liability in full in 24 months.
Line 25. Overpayment
Enter the amount you’ve paid in excess of what is due.
Line 26. Credit to next year’s estimated tax. Refund.
You may choose to apply your tax refund to next year’s estimated taxes. If you wish to do so, the refund will apply to the first estimated payment until all of the refunds have been fully used.
The next section must contain the signature of the officer, the date when he or she signed, and his or her title. The section below must contain the paid preparer’s information. It must include the authorization for the IRS to discuss the return with the preparer, your name, signature, the date, the Preparer Tax Identification Number (PTIN), the firm’s name, address, its EIN, and correct phone number.