IRS Form 1120-H (2020): Tax Return for HOAs

What IRS Form 1120-H (2020) Is For

IRS Form 1120-H (2020) is the income tax return used by homeowners' associations to report the association’s gross income and claim certain tax benefits available under Section 528. The form allows an HOA to exclude exempt function income, including membership dues, assessments, fees, and other exempt income tied to association property and the association’s services. Exempt function income consists of payments from members that support the maintenance, repair, or operation of common areas.

Only non-exempt income—such as interest, rental payments, usage fees from non-members, and capital gains—is subject to tax. This non-exempt income is taxed at a flat tax rate of 30% for most homeowner associations or 32% for timeshare associations. Electing Form 1120-H generally grants the HOA tax-exempt status for that tax year, provided the filing requirements are met. Many associations prefer Form 1120-H because it is simpler than filing the regular Form 1120 corporation income tax return and often results in the lowest tax.

When You’d Use Form 1120-H for 2020 (Late or Amended Filing)

You would file Form 1120-H for the 2020 tax year if the HOA missed the original due date of April 15, 2021, or the next business day when the date falls on a legal holiday. Late filings often happen when the Internal Revenue Service issues notices, identifies missing federal tax returns, or assesses penalties based on unfiled tax forms.

An amended return may be required if the HOA underreported non-exempt income, misallocated direct expenses, used the wrong tax rate, or incorrectly calculated taxable income. A late regulatory election may still be accepted if the HOA shows reasonable cause. Filing late does not relieve the obligation to pay taxes; the total tax amount continues to accrue interest until it is fully resolved.

Key Rules Specific to 2020

• Flat tax rate: The tax rate is 30% for condominium management associations and residential associations, and 32% for any timeshare association.
  
  
• Gross income test: At least 60% of the HOA’s gross income must be exempt function income.
  
  
• Expenditure test: At least 90% of the association’s expenditures must relate to operating and maintaining association property.
  
  
• Standard deduction: A $100 deduction applies when calculating taxable income.
  
  
• Estimated tax payments: Estimated tax is not required for associations that elect to file Form 1120-H.
  
  
• Reserves: An HOA may accumulate reserves for maintenance and repairs without affecting its tax-exempt status, provided the rules are followed.

Browse more tax form instructions and filing guides in our Forms Hub.

Step-by-Step (High Level)

• Gather transcripts: Request 2020 account transcripts from the Internal Revenue Service to confirm whether federal tax returns, substitute filings, or tax payments were applied to the association’s account.
  
  
• Complete Form 1120-H: Use the correct tax form for the 2020 tax year and mark “Amended return” if correcting earlier filings.
  
  
• Attach supporting schedules: Include documentation for taxable income, capital gains, direct expenses, and non-exempt income to support the association’s income calculations.
  
  
• Mail the tax return: Send the return to Kansas City, MO, or Ogden, UT, depending on the HOA’s location, including states like Rhode Island, South Carolina, and West Virginia.
  
  
• Keep thorough records: Maintain copies of all tax forms, delivery receipts, and supporting schedules to address any future tax issues.

Learn more about federal tax filing through our IRS Form Help Center.

Common Mistakes and How to Avoid Them

• Misclassifying usage fees as exempt income: This occurs when HOAs treat non-member payments as exempt income from a non-exempt function. To avoid this mistake, review whether each fee meets the IRS rules for tax-exempt classification.
  
  
• Failing the 60% gross income test: Some HOAs assume they qualify without calculating the association’s gross income; avoid this by confirming that exempt function income consists of at least 60% of all receipts.
  
  
• Incorrectly counting expenditures for the 90% test: HOAs sometimes include unrelated non-exempt expenses; avoid this by reviewing whether the association’s expenditures relate directly to managing HOA property.
  
  
• Applying the wrong tax rate or ignoring the $100 deduction: Errors in calculating total tax affect tax obligations; avoid this by checking whether the HOA is a residential association or a timeshare association.
  
  
• Using the wrong EIN or legal name: Incorrect details delay IRS processing; avoid this by matching information with prior tax returns and internal HOA records.
  
  
• Overlooking capital gains or interest income: Some HOAs overlook listing all non-exempt income; avoid this by reviewing bank statements and investment accounts.

Learn more about how to avoid business tax problems in our guide on How to File and Avoid Penalties.

What Happens After You File

The Internal Revenue Service generally processes Form 1120-H in several weeks. If the HOA owes tax amounts, the IRS will send a notice stating the balance due. Associations that cannot pay taxes immediately may request an installment agreement for balances under $25,000, but interest continues to accrue from the original due date.

If the IRS makes adjustments, the HOA still holds appeal rights. Filing accurately and on time helps minimize penalties and keeps HOA tax returns compliant for future tax seasons.

FAQs

Can I still file IRS Form 1120-H (2020) even though the due date has passed?

Yes, you can file IRS Form 1120-H (2020) even if the tax return is late. Filing late may result in penalties, but submitting the return ensures that the Internal Revenue Service updates the association’s tax records and calculates any remaining income tax liability accurately. Filing also stops further penalty accumulation and keeps future HOA tax returns in good standing.

How does exempt function income affect a corporation's income tax return for an HOA?

Exempt function income lowers taxable income by removing membership dues, assessments, and qualified charges from taxation. When filing a corporation income tax return, such as Form 1120-H, only non-exempt income is subject to taxation. This structure enables many HOAs to reduce their total tax burden and maintain tax-exempt status when they qualify under Section 501(c)(4) of the Internal Revenue Code.

When should an HOA use Form 1120-H instead of Form 1120?

An HOA should use Form 1120-H when it meets the filing requirements, including the 60% income test and 90% expenditure test. Associations that qualify receive certain tax benefits, a predictable flat tax rate, and simpler reporting. Form 1120 is required when the HOA does not meet Section 528 standards or elects different treatment for that fiscal year.

Do I need to file Form 1120-H if the HOA typically files tax returns using other methods?

You must file Form 1120-H if the association elects that form for the tax year. Filing federal tax returns under this form allows exempt income to remain untaxed and ensures that only taxable income is reported. Many associations prefer this approach because it streamlines HOA tax return preparation and reduces the risk of errors.

What is the due date for HOA tax returns, and what filing requirements apply?

The due date for HOA tax returns is the 15th day of the fourth month following the end of the fiscal year, typically April 15, unless the date falls on a weekend or a legal holiday. Filing requirements include reporting the association’s gross income, listing non-exempt income, and paying any tax liability owed. Filing on time helps avoid penalties and maintains good standing with the Internal Revenue Service.

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