Before the Tax Reform Act of 1976, HOAs that were not approved as 501(C) nonprofit organizations were treated as for-profit corporations for tax purposes and required to file Form 1120, a business return. Form 1120 forced payment of tax on dues and assessments that exceeded expenses for each tax year.

The Tax Reform Act of 1976, however, 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 1120-H Tax Return for a Homeowners Association. This definition has five necessary tests: 1) Exempt Purpose Test, 2) Exempt Function Income Test, 3) Exempt Function Expense Test, 4) No Private Inurement Test, and 5) Election to apply IRC Section 528 for that tax year. Your HOA must pass all five tests to file Form 1120-H for a particular tax year.      Read the article…………….