HOA Tax Form Selection

An HOA is unique in that it may choose one of two treatments for tax purposes. An HOA may file as a regular corporation using form 1120 and paying customary corporate rates on taxable income starting at 15%. Alternatively, it may file Form 1120-H under Reg §1.528-8, paying a flat 30% rate on taxable income. This would be like an individual having the ability to choose whether to file a 1040 or 1040A only filing the 1040A gives you a 15% tax break. The election is made each year by filing the appropriate form. Since it is an annual election, the facts and circumstances must be considered each year to make the correct choice.

By far the simpler form is the 1120-H filed under the rules of section 528. Earney & Company, LLP estimates that the average 1120-H takes 8 hours less time to prepare than the typical 1120 for an HOA. The CPA and staff cost savings of an 1120-H generally more than offset the higher tax rate.

In order to help the Association Board and CPA make the right annual tax filing choice between Form 1120 (Section 277) and Form 1120H (Section 528) a CPA or tax preparer must not only consider the tax liability which obviously would be lower in almost all cases using form 1120 he must consider the cost benefits, complexities, and potential audit exposures of such a choice.