Did you know that tax season isn’t just for individuals and businesses? It’s an important time for HOAs too!

Managing taxes might not be the most fun or glamorous part of running a community, but it is a crucial part of the job for keeping things on track financially. 

Here’s what your HOA needs to know about taxes, exemptions, and the steps to stay ahead of the game!

Federal and State Filing Requirements

Did you know that almost all HOAs, despite being not for profit entities, must file federal and state income taxes every year? 

That’s right - even if your HOA is a nonprofit and does not owe any taxes, filing is still a requirement. 

The good news is member assessments aren’t taxable income. However, income from interest, clubhouse rentals, or other non-assessment sources will be subject to taxes.

What Do HOAs Pay Taxes On?

While HOAs often avoid property taxes on common areas like clubhouses, open spaces, or roads (as long as members have exclusive use), there are exceptions. 

Shared-use spaces, such as parking lots used by non-members, may still be taxable. 

Timing also plays a big role. For example, in many states, a property must be owned by the HOA on January 1st to qualify for a tax exemption that year.

Pro tip - If your HOA recently acquired common property, check the deed date and consult your local property tax office to explore exemption possibilities. Filing the right forms on time could save your community money.

Where Taxes Fit in the HOA Budget

Taxes are a necessary part of the HOA’s annual financial plan. Whether it’s property taxes, federal taxes, or state income taxes, they need to be accounted for. 

Some unique community associations, like marina HOAs, face additional tax obligations. For example, taxeszon boat slips or shared spaces might fall under the HOA’s responsibility rather than individual members.

The key? Proper budgeting. Make sure tax obligations are factored into annual assessments to avoid unpleasant surprises.

Exemptions - What to Watch For

Securing exemptions can make a big difference for your HOA’s bottom line. 

If your HOA pays taxes on common property, some of these expenses might be deductible on individual members’ personal income taxes. While it’s not a guarantee, it’s worth checking.

Always consult a qualified tax professional to ensure your HOA is taking advantage of all applicable exemptions and to help homeowners understand potential personal deductions.

Choosing the Right Tax Form

HOAs are unique in that they can choose which tax form to file each year. 

Smaller HOAs might opt for the simplified Form 1120-H, while larger associations with more complex finances might file the traditional Form 1120. 

The choice often depends on factors like investment income, non-assessment revenue, and the cost of tax preparation.

Working with a CPA who specializes in HOA finances can help determine the best option for your association while keeping filing costs in check.

How RowCal Makes Tax Season Easier

Tax season can sometimes feel overwhelming, but at RowCal, we make the process as smooth and stress-free as possible for HOA boards! 

Our team coordinates directly with tax preparers to ensure they have all the necessary documents to complete your HOA’s returns accurately and on time.

Once your returns are ready, we take care of the rest of the details:

✅ Getting them signed.

✅ Securely saving a copy in your association’s files.

✅ Ensuring everything is properly filed.

With our proactive approach, your HOA can stay compliant, avoid penalties, and keep financial operations running seamlessly. No stress, no last-minute scrambling - just a streamlined process handled by experts who’ve got your back!

Taxes might not be the most exciting part of HOA management, but they’re essential for keeping your community on solid financial ground. 

By staying informed, planning ahead, and working with the right professionals, your HOA can handle tax season like a pro!

Have questions about managing your HOA’s finances? 🗨️Reach out to us - we’re here to help!