When it comes to filing tax returns for an HOA or condominium association, there are generally two options: Form 1120-H and Form 1120. The association will have to qualify in order to file Form 1120-H, but that should not be a problem for most associations.
But with options come questions. Which form has a higher audit risk? Which form will result in the lowest tax liability? Which return is more difficult to prepare? The questions may be more difficult to answer than first thought. We look to answer some of these questions here.
Both forms have their advantages and disadvantages. Normally the determining factor is which will yield the lowest tax liability. That is the first thing that any association manager will consider. But in reality, there are many factors that should be carefully examined before determining which form to file.
Tax Advantages of Form 1120:
Tax Advantages of Form 1120-H:
Deciding which tax return to prepare and file should only be done with careful consideration. Form 1120-H is a rather straightforward form, but it often does not result in the lowest tax liability. Form 1120 is more complex, but offers a lower tax rate.
Which form is best? It all depends on the facts and circumstance surrounding the association. Make sure you review the situation with your CPA and make the best decision for your association.
Paul Sundin is a CPA and he does HOA tax preparation and planning for HOAs and condominium associations. You can contact him at www.hoatax.com.