A homeowners association, or HOA, is either a condominium management association, a residential real estate management association, or a timeshare association. An HOA may elect to file Form 1120-H as its income tax return, in order to take advantage of certain tax benefits. These benefits, in effect, allow the association to exclude exempt function income from its gross income.
Exempt function income consists of membership dues, fees, or assessments from owners of HOA property or rights. This income must come from the members as owners, not as customers, of the association's services. Some examples include assessments made to pay principal, interest, and real estate taxes on association property, maintenance of the property, and snow and trash removal.
A homeowners association makes the election to file Form 1120-H separately for each tax year in order to take advantage of certain tax benefits, and pay a flat tax rate on taxable income (30%, or 32% for timeshare associations). If the HOA does not make the election, it must file the applicable tax return instead, likely the Form 1120.
To file Form 1120-H within TaxAct® 1120: