Tax season is upon us and, yes, even your homeowner association must file taxes! A homeowner association is considered a common interest realty association or “CIRA” but they must still file a federal tax return through the IRS. Let’s review some information that is good to know as we are coming into tax season.
When taxes are due:
For most HOAs, tax season aligns with the typical April 15th deadline. However, in all actuality, taxes for HOAs are due on or before the 15th day of the fourth month after the end of the HOAs tax year. This is why April 15 is tax day; it is the 15th day of the fourth month after the end of the year. If your HOA has a different end of the tax year, be sure to calculate that so you know when your taxes are due.
What forms to use:
It is always best that your HOA have a CPA, or Certified Personal Accountant, help you file taxes. A CPA can help board members by deciding whether to fill out Form 1120, U.S. Corporation Income Tax Return, or Form 1120-H, U.S. Income Tax Return for Homeowners Associations.
Form 1120 is for any US corporation to report gains, losses, income and deductions, while Form 1120-H is a simplified version designed specifically for HOAs. This form lets your HOA exclude dues, fees, and assessments from the owner's gross income, which may be better for your return. A CPA will help choose the most lucrative form to utilize.
Not all states make HOAs pay taxes but it is very important to do so if you live in a state that requires it, such as Massachusetts. Your CPA will be able to assist you and find out if your HOA should pay state taxes.
Many may ask if a homeowner association is tax-exempt but most are not. It is a very rare situation in which an HOA is. For this to happen, the HOA must be able to prove that they do not offer any external maintenance on the homes in the community and any land owned by the HOA must be for public use. Some HOAs may be set up as non-profits but this does not make them tax-exempt unless they fulfill the previously mentioned requirements.
Rental properties with HOA fees:
Though an HOA is not tax-exempt, a rental property in a community with HOA fees is tax-deductible. This is because the HOA fees can be included in personal taxes as a rental expense.
As you can see, taxes for an HOA in Dallas are complicated. By having an HOA management company like PMI Alliance, the process is much easier. We can help your HOA treasurer get the right information over to your CPA. While we won’t get in the way of your process, we will never leave you out to dry and will always be here to help!