What federal tax return do unincorporated homeowners associations file?
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While figuring out what the appropriate homeowners association tax return to file seems like it would be a fairly straightforward process, there are a lot of factors that go into determining the correct form for your association. Some states including California allow for homeowners’ associations to be setup without incorporating. These types of homeowners’ associations are considered unincorporated.
Being unincorporated at the state level does not mean you don’t have to file a federal, or possibly even a state tax return. In fact all homeowners’ associations should file a federal tax return, which tax return that is depends on the structure and operations of the homeowner association. For example a homeowners’ association that receives exempt status from the IRS may file Form 990. Although, receiving exempt status for a homeowners’ association may be done, associations rarely apply for federal exemption. A vast majority of homeowners’ associations file Form 1120-H (U.S. Income Tax Return for Homeowners Associations). Both incorporated and unincorporated homeowners’ associations file Form 1120-H.
The most common fallacy we hear from homeowners’ associations is because they are unincorporated, or have a non-profit motive it exempts them from taxes. This couldn’t be farther from the truth. Federal taxes for homeowners’ associations aren’t determined by the incorporation status, or the stated profit motive, instead they are affected by the sources of income and nature of the operations.
The 2013 instructions for Form 1120-H state:
“If the association does not elect to use Form 1120-H, it must file the applicable income tax return, for example, Form 1120 U.S. Corporate Income Tax Return.”
Even unincorporated homeowners associations that don’t, or can’t file Form 1120-H, must file Form 1120. The IRS actually installed Revenue Code 277 which applies to Form 1120 for membership organizations including homeowners’ associations. The IRS makes no distinction between unincorporated or incorporated homeowners’ associations under Revenue Code 277.
Unfortunately their are no direct IRS tax rules for associations that are forced to file Form 1120. It is entirely based on various court rulings, IRS interpretations and industry standards. If you are not sure whether or not you qualify to file Form 1120-H, give our online software a try for free, our software will let you know if you qualify for Form 1120-H. You only pay if you want to print a completed Form 1120-H.
Doug McLain, CPA