IRS Form 1120-H (2018): Tax Return for HOAs

IRS Form 1120-H is the federal income tax return that homeowners' associations file to elect treatment under Section 528. It separates exempt function income from taxable income and applies a flat tax rate to net non-exempt earnings.

Late Filers 

HOAs that missed the 2018 deadline must still file Form 1120-H. Penalties and interest continue accruing until the balance is paid.

Multiple Income Sources 

Associations earning rental income, usage fees, or interest alongside membership dues must separate non-exempt income from exempt function income before calculating tax liability.

Itemizing Deductions 

Eligible direct expenses tied to association property may offset non-exempt income. Only properly documented expenses related to the association's services qualify as deductible.

Claiming 2018 Credits 

Section 528 qualification determines whether the association may file Form 1120-H. If eligible, the association may claim credits and must attach all applicable forms.

IRS Compliance 

Form 1120-H filers must meet both the 60-percent gross income test and the 90-percent expenditure test under Section 528 to maintain qualified HOA tax treatment.

Citizens Abroad / Military 

For Form 1120-H, filing deadlines are determined by the association's tax year, and paper mailing addresses are determined by the association's principal business or office location.

Complete Form 1120-H for 2018 by gathering the association's financial records, verifying Section 528 qualification, and accurately separating exempt from non-exempt income before calculating tax.

1. Gather Your Documents Before Starting

Collect bank statements, invoices for HOA property expenses, membership dues records, IRS transcripts, and any prior-year corporation income tax returns relevant to the 2018 fiscal year. Confirm all income categories are documented before starting the form.

2. Confirm the Association's Filing Status [2018] Only

Form 1120-H is filed at the entity level, not using individual filing statuses. Before proceeding, confirm whether the organization qualifies under Section 528 as a homeowners association, condominium management association, residential real estate association, or timeshare association. Each category carries specific eligibility requirements, and selecting the correct type determines which flat tax rate applies for 2018.

3. Report All Income on the Correct Lines 

Report exempt function income separately from gross income, excluding exempt function income. Fees must be classified under Section 528 rules based on whether they are received from members as owners rather than as customers. Income that qualifies as exempt function income is excluded from taxable gross income; all other receipts are reported as taxable.

4. Calculate Taxable Income

For Form 1120-H, taxable income is computed by subtracting directly connected deductions and the specific deduction of $100 from gross income, excluding exempt function income. The resulting amount is taxed at 30 percent for most associations or 32 percent for timeshare associations.

5. Apply the Correct Tax Rate and Deductions 

Apply the 30-percent flat tax rate to taxable income for qualifying homeowners associations, condominium management associations, and residential real estate associations. A qualifying timeshare association must apply the 32-percent rate. Form 1120-H allows deductions directly connected with producing gross income, excluding exempt function income, plus a specific deduction of $100.

6. Verify Section 528 Qualification Tests 

Confirm that at least 60 percent of gross income is exempt function income and that at least 90 percent of expenditures relate to association property or services. Failing either test disqualifies the association for 2018.

Missing W-2s or Tax Records for 2018?

Associations can generally e-file Form 1120-H. To amend a previously filed return, file a corrected Form 1120-H and check the "amended return" box. An authorized officer or fiduciary must sign before submitting.

IRS Wage & Income Transcript 

An IRS wage and income transcript reflects amounts reported to the IRS by third parties for 2018. Associations can use this to verify reported income and identify discrepancies before completing the return.

IRS Account Transcript 

An IRS account transcript shows tax payments, penalties, interest charges, and prior filings on record for 2018. Use this transcript to confirm the association's current balance and payment history before filing.

Social Security Administration 

For associations needing to verify compensation-related information reported during 2018, the Social Security Administration may provide wage data that can supplement missing payroll or officer compensation records.

Contact Prior Employers 

If the association employed staff or contracted services during 2018, contacting prior payroll providers or vendors can help recover wage statements, invoices, and payment records needed to support the return.

Do not estimate the association's income figures — use IRS transcripts and supporting documentation to ensure all reported amounts match official IRS records exactly.

Avoiding these errors on Form 1120-H will help ensure the 2018 return is accepted and processed without unnecessary delays or adjustments.

• Using the wrong tax year form — Submitting a version other than the 2018 Form 1120-H creates filing errors; always confirm you are using the correct prior-year form and instructions before filing.
  
  
• Misclassifying exempt and non-exempt income — Treating rental income, usage fees, or interest as exempt function income will cause incorrect tax calculations and potential audit exposure.
  
  
• Applying the wrong flat tax rate — Using 30 percent for a timeshare association instead of the required 32 percent will result in an understated tax liability and potential penalties.
  
  
• Failing the Section 528 qualification tests — Not verifying the 60-percent gross income test and 90-percent expenditure test before filing may disqualify the association from Form 1120-H treatment entirely.
  
  
• Incorrect penalty or interest calculations — Miscalculating accrued penalties and interest on late payments will result in a discrepancy between the filed return and the IRS account balance.
  
  
• Assuming a refund is still available — The three-year refund window for 2018 has generally closed; filing with an expectation of a refund may cause errors in how the return is prepared and submitted.
  
  
• Missing or incorrect Employer Identification Numbers — Using an incorrect EIN or leaving the association's tax identification number blank will delay processing and may trigger IRS notices.
  
  
• Unsigned return — Form 1120-H must be signed by an authorized officer or fiduciary; unsigned returns are invalid and will be returned unprocessed.
  
  
• Missing supporting schedules and attachments — On the 2018 Form 1120-H, net operating loss deductions are not allowed. Attach only the forms and schedules required for items claimed.

What is IRS Form 1120-H (2018) used for?

IRS Form 1120-H is the federal income tax return that homeowners' associations file to elect Section 528 treatment. For 2018, qualifying HOAs and condominium management associations use it to exclude exempt function income from federal taxation and pay a flat tax rate on net non-exempt income.

Can I still file a 2018 Form 1120-H return?

Yes, the IRS still accepts late HOA tax returns for 2018. Filing Form 1120-H promptly stops the failure-to-file penalty from accumulating. However, the three-year refund window has generally closed, meaning most associations filing now will owe taxes, penalties, or interest. Consult a tax professional to review your association's current balance before filing.

What is the flat tax rate for Form 1120-H in 2018?

For tax year 2018, the IRS applied a flat 30 percent rate to most homeowners' associations and condominium management associations, and 32 percent to timeshare associations. The rate applies to taxable net income after allowable direct expenses, and the specific deduction of $100 are subtracted.

What is exempt function income under Section 528?

Exempt function income consists primarily of membership dues, assessments, and payments from members tied to association property or services. For 2018, this income was excluded from taxable gross income when the HOA met both Section 528 qualification tests. Rental activity and investment interest do not qualify.

What happens if the association fails the Section 528 qualification tests?

If the association fails either Section 528 test for 2018, it cannot file Form 1120-H. Instead, it must file a corporation income tax return on Form 1120, where exempt function income is not excluded, resulting in higher tax liability. A tax professional can evaluate both options.

Can the association set up a payment plan if it owes taxes for 2018?

Yes, HOAs unable to pay their 2018 balance in full may apply for an IRS installment agreement using Form 9465, allowing monthly payments of principal, penalties, and interest. The failure-to-pay penalty continues accruing during repayment, but an installment agreement prevents more serious IRS collection actions.

Does Form 1120-H need to be filed every year?

Yes, homeowners' associations must file federal tax returns annually on Form 1120-H to maintain the Section 528 election. Filing requirements apply to each tax year independently. Missing a due date exposes the organization to penalties, interest, and potential IRS compliance problems for the unfiled year.