Does your HOA qualify for Form 1120-H?

Homeowner (and condominium) associations hold an unusual place in the tax world. On the one hand, most do not squarely meet the definition of a 501(C) nonprofit. On the other, they are not in business pursuing a profit. In fact, the vast majority of HOAs are small, volunteer-ran associations that function solely to enforce covenants and maintain the common areas of its residential members.

The Tax Reform Act of 1976 created Section 528 of the Internal Revenue Code and a special carve-out for qualifying homeowner associations. Section 528 defines what an HOA is for tax purposes and gives those meeting the definition the opportunity to file Form 1120H Tax Return for a Homeowners Association. This definition has five basic tests: 1) Exempt Function Test, 2) Exempt Function Income Test, 3) Exempt Function Expense Test, 4) No Private Inurement (benefit) Test, and 5) Elect to apply section 528 for that tax year. Your HOA must pass all five to file Form 1120-H for a particular tax year.    Read the article…………………….