Discussion:Form 1120-H Homeowner Associations
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Discussion Forum Index --> Tax Questions --> Form 1120-H Homeowner Associations
| 20 February 2008 | |
| Since more and more homeowner associations are now providing Director and Officers insurance is this expense part of the tax exempt expenses or should I list it under the administrative expenses which are other expenses. | |
| 20 February 2008 | |
| Yes it's an admin expense but it's still related to exempt function activity | |
| 20 February 2008 | |
| Is there any limit on how much equity can be left each year in a Homeowner Association? | |
| February 20, 2008 | |
| NO limit on equity that I know of. The interest thrown off by the reserve account will be taxable income i.e. is not exempt function income. | |
| 20 February 2008 | |
| "Profit" on exempt function activities is not an issue with the 1120H and no there is no limit. Where you have to be careful is when you start filing an 1120, then it gets more complicated because the overages would be taxable. It just takes a little bit of planning. | |
| February 20, 2008 | |
| Under what circumstances would an HOA benefit from filing an 1120? | |
| 20 February 2008 | |
| I hate this answer, but it depends on how much your client is willing to pay. I can do a straight forward 1120-H and CA Form 199 and Form 100 for an inexpensive fee - and the HOA's I do are VERY tight with their money.
If I start doing 1120's, with C/O's etc., my fee may not be worth the little savings the HOA may get from doing an 1120-H. | |
| 20 February 2008 | |
| An 1120 would make sense if you have a significant amount of portfolio income due to reserve funds. 1120H taxes it at 30%, 1120 uses regular corporate rates. Try explaining to a client that it's easier for you if they pay twice the tax. | |
| February 20, 2008 | |
| Thanks RK, that makes sense. So on an 1120, the HOA dues are not considered income? If they are income, then can you deduct the payments to the sinking fund as expenses even if you haven't yet spent the money? | |
| 20 February 2008 | |
| Regular assessments to homeowners are income, payments to sinking fund are not expenses. Assessments to homeowners for reserves (when supported by a properly conducted study) are capital contributions. Reserve expenses are capital expenditures that do not get deducted on the return. | |
| 21 February 2008 | |
| Again, PPC has an excellent tax and accounting guide on these. Don't get to invested, these are the most disloyal clients, boards change, you raise your fee a little, and you are out. | |
| 24 February 2008 | |
| When opting to file the 1120, would you take external painting of the units as repair and maintenance expense? | |
| 25 February 2008 | |
| Painting and staining is always a maintenance expense unless it is done as part of a larger replacement project. | |
| 26 February 2008 | |
| Do you know of any IRS publications, etc that are helpful for filing form 1120 for an HOA. I havent been able to find any with information on the details of filing the form 1120 instead of the 1120-H. In a year when there is a loss, do you just limit expenses to the extent of the income? Thanks for your input | |
| 26 February 2008 | |
| I don't know of any IRS Pubs, PPC is your best bet. Short answer to your question is yes, the expenses are limited to the extent of income. This creates a Sec 277 carryover (not an NOL) | |
| 27 February 2008 | |
| From a procedural basis, if you have a loss from membership activity and 4,000 of interest income it seems like you'd have to limit the expense you put on the return so you end up with the 4,000 of taxable income. And manual track the carryover of expense. | |
| 27 February 2008 | |
| That would be correct, as a general rule the portfolio income is always taxed. I keep a schedule of my Sec 277 Carryover in order to track the balance as I utilize it in future periods. | |
Kfriedrichsohn (talk|edits) said: | 28 February 2008 |
| Seeing this thread is recent I thought I would post my 1120-H question here. I am new to condo associations, and we are currently in the process of building our condos, however the city required that we establish the condo association and get an EIN before issuing building permits. They also required us to establish an association checking account, which the entity that owns all of the condo lots fronted, until units are built, sold and condo owner's pay their dues. Do I just file the 1120-H with nothing on it? It seems logical, however in the same sense it doesn't seem right! Thanks for your help! | |
| 28 February 2008 | |
| You could just put $100 in the checking account and carry the balance as a loan from the Declarant. Then show no income or expense on the return. | |
| 18 March 2008 | |
| I am hoping someone can help me with my question. I am very new to our condo association. Our condo own a parking lot which generates income. At the same time the city charges us property tax. Are property taxes deductible? Thanks | |
| 18 March 2008 | |
| The taxes are deductible as membership expenses. Are they for the entire property or just the parking lot? If they are for the parking lot they can offset parking lot income. This assumes of course that the parking lot revenue is not from unit owners.If the revenue is from non-members then it is non-membership income and can only be offset by non-membership expense. | |
| 8 August 2008 | |
| I'm new to homeowner association rules for returns. I'm working on an old return from 2005 and it appears that I may NOT be allowed to file an 1120-H since it is over 1 year past due. My client will owe a lot of money on the 1120. The instructions state GENERALLY the election must be made within a year. Does anyone have any experience with this issue? | |
| 8 August 2008 | |
| Regulation 301.9100-3 sets forth rules for submitting a private letter ruling request to obtain relief for late filing of the Sec. 528 election. | |
| 2 November 2008 | |
| I'm also new to the homeowner association rules for returns. The association was set up as an LLC rather than a corp. Can I still file an 1120-H? Also, the LLC (association) was started in late 2006, so obviously I can not file an 1120H for 2006 or 2007, would I then file an 1120 or 1065? Would anyone be able to help? | |
| 2 November 2008 | |
| An 1120-H is an annual elective form for a CORPORATION.
You really need to check out the actual form of entity that was created by the LLC. If you have access to a copy of Form 8832 - that would provide you a clue. You haven't stated how many unitholders are involved in this association - so it's difficult to tell if a Form 1065 (which I highly doubt) is appropriate. With a 1065, each unitholder would be receiving, or should have received a K-1, where their respective tax data should have shown up on their respective returns. With unitholders moving in and out each year, vacancies do exist for periods of time, lapses in ownership % exist - I would highly doubt, as I stated, that your entity would be a 1065 Partnership. Weren't extension forms filed for 2006 and 2007? | |
| 2 November 2008 | |
| Unfortunately they never filed any tax papers. I've inherited a mess. I have the legal papers (declaraton and bylaws) and they all state XXX Condominium Association LLC. I also have a delequincy notice from the state and insurance papers that also state LLC. Based on that documentation is it safe to assume they formed an LLC?
There are 3 units and 3 owners all with equal voting power. Is there anything I can do to fix this? | |
| 2 November 2008 | |
| Then I would contact the Secretary of State to obtain copies of the filing papers to 1) Keep a copy for your records and 2) To actually determine the organization status.
Simply because LLC is stated in its name doesn't tell you the type of entity it is. This is the whole misconception of the term LLC. It's a fancy term that seems to impress the public - but they don't know what it really means. | |
| 2 November 2008 | |
| Uncle Sam after more digging I found a clause in the Declaration stating that the xxx Associatioin, LLC is a non stock corporation organized under the laws of the state. Based on that I believe I can file an 1120H. Correct? | |
| 2 November 2008 | |
| The instructions on the back of Form 1120-H mention that the election to file this form must be made by the due date, including extensions.
In addition, it states: Automatic 12-month extension to make election. If the homeowners association fails to make the regulatory election to be treated as a homeowners association, it can get an automatic 12-month extension to make the section 528 election, provided corrective action is taken within 12 months of the due date (including extension) of the return. See Regulations section 301.9100-2 for more information. So it appears that for 2006 and 2007 you must file 1120. | |
