Many homeowners associations (HOAs) are surprised to learn that they must file a corporate tax return each year—even though they are nonprofit corporations under state law. The IRS views HOAs as corporations for tax purposes, which means that regardless of their size, income level, or volunteer leadership, they must follow specific federal filing requirements.
Whether you’re a board member, treasurer, or committee volunteer overseeing your community’s finances, understanding how to properly file taxes is essential for keeping your HOA compliant, protected, and in good financial standing. Below is a practical guide to how an HOA can file a corporate tax return, along with the benefits of partnering with a professional HOA management company to streamline accounting and tax filing.
Understanding HOA Tax Status
An HOA is typically incorporated as a nonprofit under state law, but the IRS treats it as a taxable corporation unless it qualifies under IRS Section 528, which provides specific tax benefits for homeowners associations. To qualify, at least 60% of revenue must come from assessments and 90% of expenditures must go toward maintaining the property.
Regardless of qualification, the HOA must file a yearly corporate return using one of the IRS-approved forms.
Which Tax Forms Can an HOA File?
There are two primary tax filing options for HOAs:
1. Form 1120-H (U.S. Income Tax Return for Homeowners Associations)
This is the most commonly used tax form for HOAs because it is simpler, carries fewer audit risks, and allows certain income to be excluded. Most HOAs prefer Form 1120-H because:
- It has a flat tax rate of 30% on taxable income
- Only non-exempt income—such as interest or rental/usage fees—is taxed
- It is easier to complete and less likely to trigger IRS scrutiny
Form 1120-H must be filed by the annual deadline (usually the 15th day of the 4th month after the fiscal year ends).
2. Form 1120 (U.S. Corporation Income Tax Return)
Some HOAs choose Form 1120 because it may result in a lower tax rate, but it is significantly more complicated and risky. With Form 1120:
- The HOA must follow strict accounting rules
- All income, including assessments, may count as taxable if improperly classified
- The HOA may be subject to higher audit risk
Form 1120 is generally better suited to associations with large amounts of taxable income and professional accounting support.
Steps to File Taxes for an HOA
Whether you are the treasurer or a financial committee member, filing the HOA’s taxes requires careful organization. Here are the core steps:
1. Gather Financial Records
Collect bank statements, income records, expense reports, reserve fund statements, and prior-year tax filings. Accurate bookkeeping throughout the year makes this step much easier.
2. Determine the HOA’s Taxable Income
Taxable income may include:
- Interest earned on bank accounts
- Rental income for clubhouse or amenities
- Vendor rebates
- Non-assessment income
Assessment revenue used for maintenance is usually considered exempt for Form 1120-H.
3. Select the Appropriate IRS Tax Form
Most HOAs choose Form 1120-H for simplicity, but the board should review both options annually or consult a tax professional to determine which form results in the lowest liability.
4. Complete the Form and File on Time
The treasurer or designated board member can complete the form manually, file electronically, or work with a CPA. Late filing results in penalties, so deadlines should be added to the HOA’s annual calendar.
5. Keep Records Organized for Future Audits
The IRS requires that associations maintain detailed records supporting their tax filings. Organized accounting practices and clear documentation protect the HOA and its volunteer board members.
Why Hiring an HOA Management Company Makes Tax Filing Easier
Tax preparation is one of the top reasons HOAs hire a professional management company. Managing the association’s finances requires precision, consistency, and a working knowledge of IRS requirements—areas where volunteer boards often need additional support.
A qualified HOA management company provides:
- Year-round financial accounting and record keeping
- Preparation of annual budgets and reserve planning
- Accurate income and expense tracking needed for tax filing
- Coordination with CPAs for Form 1120-H or Form 1120
- Financial reporting that keeps the board compliant and informed
With professional support, the board can avoid tax mistakes, reduce the risk of audits, and ensure a smooth, timely filing every year.
Need Help Managing HOA Finances and Tax Filing? Contact KRJ.
For HOAs in the Houston area, KRJ provides comprehensive management services designed to simplify financial accounting, annual budgeting, reporting, and tax preparation. If your board wants peace of mind knowing that your HOA’s finances are handled correctly and compliantly, KRJ is ready to help.
Reach out to KRJ today for all your HOA management needs, including accounting, annual budgets, reporting, and corporate tax filing.