For the uninitiated, tax filing for something as complicated as a community association can seem a daunting task. Fortunately, there are multiple options for homeowners associations, and with a little background knowledge, you can take the first steps toward making the right choice for your particular situation.
Some Important Basics
For starters, you should know that no matter how your association is legally organized—whether as a trust, a corporation, or a Homeowners Association (HOA)—it doesn’t affect your filing status or the need to file tax forms annually to the federal government.
According to Karen P. Sackstein, a CPA based in Fair Lawn, most New Jersey condominium communities are organized as non-profit corporations, “under NJ Title Section 15A.” Even if your association has not generated any income and owes no money to the IRS, it’s required to file a federal tax form each year. And though a great many condominium associations are run as not-for-profit entities, associations are considered corporations from the viewpoint of the IRS. (And when it comes to tax-time, that’s really the only viewpoint that matters.)
Under federal tax laws, condominium and homeowner associations have the advantage of choosing among several filing options—each with its own accompaniment of regulations and qualifications—and the ability to alter that status from year to year to their benefit. The two most common filing options to choose from are the ‘Exempt Method’ of form 1120-H, or the ‘Corporate Method’ of form 1120.
“New Jersey legal status does not affect the IRS filing status,” says Sackstein. “Most associations are required to file either an 1120 or 1120H with the IRS.” Sackstein also mentions that non-residential associations cannot file the 1120H.