IRS Form 1120-H - U.S. Income Tax Return for Homeowners Associations

IRS Form 1120-H – Homeowners associations (HOAs) play a crucial role in managing community properties, but navigating tax obligations can be challenging. If you’re part of an HOA, understanding IRS Form 1120-H—the U.S. Income Tax Return for Homeowners Associations—is essential for compliance and potential tax savings. This form allows qualifying associations to exclude certain income from taxation under Internal Revenue Code (IRC) Section 528, potentially reducing your tax burden. In this SEO-optimized guide, we’ll cover everything you need to know about Form 1120-H for the 2025 tax year, including eligibility, filing instructions, deadlines, and recent updates. Whether you’re a condominium management association, residential real estate association, or timeshare association, this article will help you file accurately and avoid penalties.

What Is IRS Form 1120-H?

IRS Form 1120-H is specifically designed for homeowners associations electing to be taxed under Section 528. It serves as the association’s income tax return, enabling the exclusion of “exempt function income” from gross income. Exempt function income typically includes membership dues, fees, or assessments from property owners used for maintaining common areas. This exclusion provides significant tax benefits, as only non-exempt income (like interest, dividends, or rental income from non-members) is taxed.

Unlike the more complex Form 1120 (used by corporations), Form 1120-H offers a simplified filing process with a flat tax rate: 30% for condominium and residential real estate associations, and 32% for timeshare associations. HOAs must elect to use this form annually by filing it on time—there’s no separate election form required. If your HOA qualifies but chooses not to elect, you’ll default to filing Form 1120 or another applicable return.

For the 2025 tax year, the form covers calendar year 2025 or fiscal years beginning in 2025 and ending in 2026. If filing for a short tax year in 2026, use the 2025 form and note any post-2025 legislative changes.

Who Should File Form 1120-H?

Not every HOA qualifies or benefits from Form 1120-H. It’s ideal for associations that meet strict IRS criteria and want to minimize taxes on exempt activities. The three main types of eligible associations are:

Condominium Management Associations: Organized to acquire, construct, manage, maintain, and care for condominium properties where at least 85% of units are used as residences by individuals.
Residential Real Estate Management Associations: For subdivisions or developments where at least 85% of lots or buildings are individual residences.
Timeshare Associations: For properties where members have timeshare rights, excluding condominium management types.

To qualify under Section 528, your HOA must pass two key tests:

60% Gross Income Test: At least 60% of gross income must come from exempt function sources, such as owner dues for property management (e.g., maintenance, taxes, snow removal).
90% Expenditure Test: At least 90% of expenditures must be for acquiring, maintaining, or caring for association property, including salaries, repairs, and capital improvements.

Additionally, no private individual or shareholder can profit from net earnings except through rebates or property care, and the association must be residential in nature. If your HOA is tax-exempt under Section 501(a) (e.g., as a 501(c)(4) or 501(c)(7) organization), do not file Form 1120-H—use Form 990 instead.

Compare your potential tax liability on Form 1120-H versus Form 1120 to decide which is lower. Many HOAs opt for 1120-H for its simplicity and lower audit risk, even if the flat rate is higher than corporate brackets.

Eligibility Requirements for Section 528 Election

To make the Section 528 election via Form 1120-H, ensure your association meets the residential and functional tests outlined above. “Association property” includes common areas owned by the HOA, members collectively, or even governmental units benefiting residents.

Exempt function income excludes payments from non-members, special use fees (e.g., guest parking), or interest on sinking funds. If your HOA fails the tests in a given year, you cannot use Form 1120-H and must file as a regular corporation. However, the IRS provides an automatic 12-month extension for late elections under Regulations Section 301.9100-2.

Step-by-Step Guide: How to Fill Out Form 1120-H

Filling out Form 1120-H requires accurate financial records. Use your association’s accounting method (cash, accrual, or other) consistently—obtain IRS consent via Form 3115 for changes. Round all amounts to whole dollars.

Header and Basic Information

Enter the HOA’s name, address, EIN (apply via IRS.gov/EIN if needed), and formation date.
Check boxes for final return, name/address changes, or amended return.
Item A: Select your association type.
Items B-E: Report totals for the 60% income test, 90% expenditure test, total expenditures, and tax-exempt interest.

Gross Income (Lines 1-8)

Report only non-exempt income:

Line 1: Dividends.
Line 2: Taxable interest (exclude tax-exempt; report on Item E).
Line 3: Gross rents.
Line 4: Gross royalties.
Line 5: Capital gain net income (attach Schedule D from Form 1120).
Line 6: Net gain/loss from Form 4797 (attach).
Line 7: Other non-exempt income (attach statement).
Line 8: Total gross non-exempt income.

Deductions (Lines 9-18)

Deductions must directly connect to non-exempt income production:

Line 9: Salaries and wages (reduce for employment credits).
Line 10: Repairs and maintenance (capitalize improvements).
Line 11: Rents (include leases; adjust for inclusion amounts).
Line 12: Taxes and licenses (exclude federal taxes).
Line 13: Interest (may be limited; see Form 8990).
Line 14: Depreciation (attach Form 4562).
Line 15: Other deductions (attach statement).
Line 16: Total deductions.
Line 17: Taxable income before $100 deduction.
Line 18: Specific $100 deduction.

Tax Computation and Payments (Lines 19-26)

Line 19: Taxable income (Line 17 minus Line 18).
Line 20: Tax (30% or 32% of Line 19).
Line 21: Credits (e.g., foreign tax from Form 1118; general business from Form 3800).
Line 22: Total tax (add recaptures).
Lines 23a-g: Payments and credits (estimated taxes, overpayments, fuel credits from Form 4136, etc.).
Line 24: Amount owed (pay via EFTPS).
Line 25: Overpayment.
Line 26: Refund or credit to next year (include direct deposit details on 26c-e).

Sign the form (officer or fiduciary) and include preparer info if applicable. Attach schedules in sequence: Forms 4136, 8978, etc., then alphabetical schedules, numerical forms, and statements last.

Electronic filing is encouraged and may be required if filing 10+ returns annually. Download the latest form from IRS.gov/pub/irs-pdf/f1120h.pdf.

Filing Deadlines and Extensions for 2025 Tax Year

File by the 15th day of the 4th month after your tax year ends (e.g., April 15, 2026, for calendar-year HOAs). For fiscal years ending June 30, file by the 15th day of the 3rd month. Use Form 7004 for a 6-month automatic extension (does not extend payment deadline). Pay any tax due in full by the original deadline to avoid interest and penalties.

Penalties for Late Filing or Payment

Late Filing: 5% of unpaid tax per month (max 25%). If over 60 days late, minimum penalty is the smaller of tax due or $525 (increased for 2026 filings).
Late Payment: 0.5% of unpaid tax per month (max 25%).
Interest: Charged on unpaid amounts at the federal rate.
Waivers available for reasonable cause—explain in writing if notified by IRS.

Recent Changes to Form 1120-H for 2025/2026

For returns filed in 2026:

Minimum late-filing penalty increased to $525.
New direct deposit fields on Lines 26c-e for refunds.
Emphasis on electronic payments via EFTPS.
No major structural changes to the form itself, but check IRS.gov for post-2025 updates.

Some sources note expanded electronic filing options and broader deductions, but always verify with official IRS guidance.

Tips for Successful HOA Tax Filing

Maintain Records: Track exempt vs. non-exempt income/expenses meticulously.
Consult Professionals: Work with a CPA experienced in HOA taxes to allocate items correctly and claim credits.
Compare Forms: Calculate taxes under both 1120-H and 1120—choose the lower liability.
Avoid Common Errors: Don’t include exempt income in gross; attach all required statements.
Stay Updated: Monitor IRS announcements for changes affecting HOAs.

By filing Form 1120-H correctly, your HOA can focus on community management rather than tax headaches. For personalized advice, consult a tax professional or visit IRS.gov for free resources. If your association doesn’t qualify, explore Form 1120 or tax-exempt status options. Stay compliant and save on taxes—your community depends on it!