The Ultimate Guide to HOA Taxes for Board Members

Do you understand HOA Taxes? If not, here’s a breakdown. 

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Taxes aren’t just for individuals or businesses, they apply to homeowners associations too. While HOAs operate differently from traditional corporations, they’re still considered taxable entities by the IRS. For board members, understanding how HOA taxes work is crucial. It helps maintain compliance, avoid penalties, and keep the association on solid financial ground.

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So, what exactly are HOA Taxes?

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HOA taxes refer to the federal (and sometimes state) tax obligations of a homeowners association. Most of an HOA’s income is used for maintaining the community, but that doesn’t exempt it from filing with the IRS. 

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Here’s the good news. 

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HOAs often qualify for certain tax advantages. Funds collected through dues and assessments that are spent on community upkeep may be considered exempt income.

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Know the filing requirements depending on your HOA’s fiscal calendar: 

• April 15 if your HOA operates on the calendar year.
• September 15 if the fiscal year ends June 30.
  
  

Note this!

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HOAs choose between two IRS forms: Form 1120 and Form 1120-H. Each comes with its own pros and cons.

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HOA taxes might seem complicated at first, but with the right preparation, they’re very manageable. Filing the correct forms, meeting deadlines, and staying informed can prevent headaches and save your community money. 

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Key Definitions that might help:

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HOA Taxes: Federal and sometimes state tax obligations that homeowners associations (HOAs) must meet. This applies even though HOAs operate differently from traditional corporations.

Taxable Entities: Organizations, like HOAs, that are subject to taxation by the IRS, even though they may not be for-profit organizations.

Dues and Assessments: Fees collected from homeowners to fund the HOA's operations, including community maintenance.

Exempt Income: Funds used for community upkeep may be considered exempt from certain taxes, reducing the overall taxable income of the HOA.

Fiscal Calendar: The specific financial year or accounting period an HOA follows, which can be either the calendar year (January 1 to December 31) or a different period, such as one ending on June 30.

Form 1120: A tax form used by corporations, including some HOAs, to report income, deductions, and taxes owed.

Form 1120-H: A specific tax form designed for HOAs that are tax-exempt under IRS rules, typically for those who meet certain criteria regarding income use and structure.

Filing Requirements: The deadlines by which HOAs must submit their tax forms to the IRS. April 15 for calendar year filers, and September 15 for fiscal year filers ending on June 30.

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Check out HOA Simplified on YouTube for more!