HOA Tax Return: Form 1120-H or Form 1120, Who Files, and When It Is Due
Last verified: October 15, 2026 · See updates
Most associations file Form 1120-H, which is due by the 15th day of the 4th month after the tax year ends: April 15 for a calendar-year association. Filing it is how the association elects section 528 treatment, and the election has to be made again every year. Dues and assessments from owners are not taxed. Reserve-account interest usually is, at 30%, after a $100 deduction.
What this page does: it sets out the four tests an association has to meet, the deadline, the rates and the arithmetic, quoting the statute at the Government Publishing Office, the Treasury regulations at the eCFR, and the IRS instructions and forms at irs.gov. Every figure below was read at one of those sources on the dates shown. There is a line-by-line worked example on the 24-unit association in our own general ledger.
What it does not do: it is not tax advice and it does not tell you which form to file. CommonKeel is not an accounting firm and nobody pays us for this page. The last section lists the five questions a CPA has to answer, and reserve-account and prior-year questions are on that list.
Which return does an HOA file?
There are three federal routes, and almost every self-managed association is on the first. Section 528 speaks of an “organization,” so the route does not turn on whether your association is incorporated, though most are.
| Route | Form | Rate on taxable income | What is taxed | Who it fits |
|---|---|---|---|---|
| Section 528 election | Form 1120-H | 30% 32% timeshare | Income that is not exempt function income, less directly connected deductions, less a $100 specific deduction | An association that passes the four tests below. The usual route for a self-managed HOA or condo association |
| Taxable corporation | Form 1120 | 21% | Corporate taxable income with no exclusion for dues or assessments | An association that fails a section 528 test, or one whose CPA has compared both returns on its own numbers |
| Tax-exempt organization | Form 990 series | not established here | Outside what this page establishes | Rare. The IRS instructions say an association exempt under section 501(a) should not file Form 1120-H. How a community association obtains and keeps that status is outside what we read for this page, and it is not a box a treasurer ticks |
Two things about that table matter more than the rate column.
- There is no small-association exemption. Section 528 sets no dollar threshold and no unit threshold, and neither do the IRS instructions. A 12-unit association with $40,000 of dues and $18 of bank interest is in exactly the same position as a 200-unit one.
- The 30% and the 21% are not comparable on their own. They sit on different tax bases. Section 528 keeps the dues out of income; Form 1120 does not. Comparing the two rates and picking the lower one is the most common way a board gets this wrong.
The four tests, from the statute
Section 528(c)(1) lists them. All four have to be met for the year, and the fourth one is the election itself.
| Test | What the statute says | Where the detail is | What trips an association up |
|---|---|---|---|
| Purpose 528(c)(1)(A) | Organized and operated to provide for the acquisition, construction, management, maintenance and care of association property | Reg. 1.528-2, with association property defined at 528(c)(5) and Reg. 1.528-3 | Rarely a problem for a residential association |
| 60% income 528(c)(1)(B) | 60% or more of gross income for the year consists solely of membership dues, fees or assessments from owners of residential units or lots | Reg. 1.528-5, which says the test is determined after the taxable year closes | An association with a large one-off nonmember receipt, for example a cell-tower or billboard payment, or a legal settlement |
| 90% expenditure 528(c)(1)(C) | 90% or more of expenditures for the year are for the acquisition, construction, management, maintenance and care of association property | Reg. 1.528-6 and the instructions to items C and D on the form | Spending on property that is not association property. The instructions also exclude transfers of funds held to meet future costs |
| No inurement 528(c)(1)(D) | No part of net earnings benefits a private shareholder or individual, other than through care of association property or a rebate of excess dues | Reg. 1.528-7, which says a rebate paid out of income that is not exempt function income is inurement | Rebating a year's surplus without checking which pot it came out of |
| The election 528(c)(1)(E) | The organization elects to have section 528 apply for the taxable year | Reg. 1.528-8: “A separate election must be made for each taxable year” | Treating last year's election as this year's. It is not |
And a fifth test nobody mentions: is the project residential enough?
Section 528(c)(2) and (c)(3) require that substantially all the units or lots be used by individuals as residences. The statute leaves “substantially all” undefined. Regulation 1.528-4, the substantiality test, puts a number on it, and the number is 85%, measured two different ways:
- A condominium management association meets it when at least 85% of the total square footage of all units in the project is used by individuals for residential purposes.
- A residential real estate management association meets it when at least 85% of the lots are zoned for residential purposes. Unimproved lots count toward the test; a commercial shopping area does not count as residentially zoned.
- The regulation treats units occupied for less than 30 days at a time, on more than half the days of the year, as not residential. A building with heavy short-term rental use can fail on that ground alone.
- The test is applied on the last day of the taxable year.
A mixed-use building with ground-floor retail is the common case. If the retail floors are more than 15% of the square footage, the association is not a condominium management association for section 528, and Form 1120-H is not available. That is a measurement a board can do from its own plans before it pays anyone to find out.
When it is due
The IRS instructions give one general rule and one exception.
| Tax year ends | Rule | Return due | With Form 7004 |
|---|---|---|---|
| December 31, 2026 the usual case | 15th day of the 4th month after year end | April 15, 2027 (a Thursday) | October 15, 2027 |
| June 30, 2027 | 15th day of the 3rd month after year end | September 15, 2027 | March 15, 2028 |
| Any other month end | 15th day of the 4th month after year end | Example: a September 30 year end is due January 15 | Six months later |
| A short year ending in June | Treated as if the short year ended June 30 | 15th day of the 3rd month | Six months later |
- Weekends and holidays. The instructions say that if the due date falls on a Saturday, Sunday or legal holiday the association may file on the next business day. Check the calendar rather than assuming April 15; in 2028, for instance, April 15 is a Saturday.
- The extension is time to file, not time to pay. The Form 1120-H instructions say so directly, and interest runs on tax paid late even where an extension was granted.
- The extension period is generally 6 months. That is the Form 7004 instruction. The same instructions add a point specific to associations: if the association is electing to file Form 1120-H, it should file Form 7004 using the original form type assigned to the entity.
- No estimated tax. The Form 1120-H instructions say the estimated tax and alternative minimum tax requirements do not apply to associations electing to file Form 1120-H, and explain why the form still carries estimated-tax lines: the election is not made until the return is filed.
- Filing late can cost the election. The instructions open the late-filing paragraph with the words “In addition to losing the right to elect to file Form 1120-H,” then set the penalty at 5% of the unpaid tax for each month or part month, to a maximum of 25%. For a return more than 60 days late the minimum penalty is the smaller of the tax due or $525 for returns required to be filed in 2026, a figure the 2025 instructions flag as an increase. Late payment is half of 1% a month, also capped at 25%. Both have a reasonable-cause exception.
- There is a relief valve for a missed election. The instructions say that an association that fails to make the regulatory election can get an automatic 12-month extension to make the section 528 election if corrective action is taken within 12 months of the due date including extensions, citing Regulations section 301.9100-2. That is a CPA's job, not a treasurer's.
What is taxed, and what is not
This is the part that saves a board money, because the exclusion is wide. Section 528(d)(3) and the IRS instructions define exempt function income as membership dues, fees or assessments from owners, received from them as owners and not as customers of the association's services. It is excluded from the tax base entirely.
| Exempt function income, not taxed | Not exempt function income, taxed |
|---|---|
| Assessments to pay principal, interest and real estate taxes on association property | Interest on amounts in a sinking fund, which for most associations means the reserve account |
| Assessments to maintain association property | Payments from nonmembers |
| Assessments to clear snow from public areas and remove trash | Payments from members for special use of the association's facilities, apart from the use generally available to all members |
| A fee for a common activity, as distinct from a charge for providing a service | Payments for work done on nonassociation property, and members' payments for transportation |
| Developer payments on unsold units or lots (Reg. 1.528-9) | Amounts not includible in gross income except under section 528, for example tax-exempt interest, which goes in item E instead |
The line most small associations land on. A self-managed association with no cell tower, no billboard and no commercial tenant typically has one taxable item: the interest its reserve savings account earned. The instructions put that squarely on the taxed side. It goes on line 2 of the form as taxable interest, and the $100 specific deduction in section 528(d)(2)(A) comes off it. An association whose reserve interest for the year was under $100 computes zero tax, and still files the return, because filing the return is the election.
A line-by-line worked example
The association below is the 24-unit association in the sample January of our free chart of accounts and general ledger: 8 one-bedroom units at $340 a month, 10 two-bedroom at $410 and 6 three-bedroom at $470, billing $9,640 a month and $115,680 a year. The four nonexempt items and the deductions are illustrative figures we chose to show where each number lands, not data about any real association. The arithmetic is ours and you can check it.
| Line | On the form | This association | Amount |
|---|---|---|---|
| A | Check type of homeowners association | Condominium management association | not a figure |
| B | Total exempt function income. Must meet 60% gross income test | The year's assessments on 24 units | $115,680 |
| C | Total expenditures made for purposes described in 90% expenditure test | Operating spend plus a reserve roof repair, less $500 paid for work on an owner's own deck | $103,900 |
| D | Association's total expenditures for the tax year | Everything the books record as an expenditure | $104,400 |
| E | Tax-exempt interest received or accrued | No municipal bonds | $0 |
| 2 | Taxable interest | Reserve savings account $2,180, operating checking $94 | $2,274 |
| 7 | Other income (excluding exempt function income) | Clubhouse hired once by a nonmember $450; coin laundry, a special use not generally available, $1,320 | $1,770 |
| 8 | Gross income (excluding exempt function income). Add lines 1 through 7 | Lines 2 and 7 | $4,044 |
| 10 | Repairs and maintenance | Laundry machine servicing and the clubhouse clean after the hire | $900 |
| 16 | Total deductions. Add lines 9 through 15 | Only costs directly connected with the income on line 8 | $900 |
| 17 | Taxable income before specific deduction of $100. Subtract line 16 from line 8 | $4,044 less $900 | $3,144 |
| 18 | Specific deduction of $100 | Fixed by section 528(d)(2)(A) | $100 |
| 19 | Taxable income. Subtract line 18 from line 17 | $3,144 less $100 | $3,044 |
| 20 | Enter 30% (0.30) of line 19 | 30% of $3,044 | $913 |
The two tests, checked on those numbers
- 60% income test. Gross income for the year is $115,680 of assessments plus $4,044 of other income, which is $119,724. The assessments are 96.6% of it. The test needs 60%, so it passes with room to spare. An association would have to take more than $77,000 of nonmember or special-use money alongside these assessments to fail.
- 90% expenditure test. Item C divided by item D is $103,900 of $104,400, which is 99.5%. The $500 the association paid toward a repair on an owner's own deck is the only non-qualifying dollar figure, because that deck is not association property.
Why the reserve contribution does not appear in item D, and why that matters. The IRS instructions say item C excludes “transfers of funds held to meet future costs,” and give a transfer to a sinking fund to replace a roof as the example. Item D, by contrast, is total expenditures computed on the association's own accounting method. So the treatment of the reserve contribution in your books decides whether the same dollars sit in D but not in C, which pushes the ratio down. Our general ledger records the monthly reserve contribution as a transfer between funds, accounts 5900 and 4910, not as an expense, for the separate reason that the money is still the association's. Books kept that way leave the reserve contribution out of both C and D and the ratio is unaffected. Books that post the contribution as an expense put it in D and not in C. This is our reading of the two instructions, not a quotation from either, and the arithmetic conclusion follows from it: on those books, the 90% test fails once the reserve contribution exceeds 10% of recorded expenditures, if nothing else is non-qualifying. An association funding reserves at 15% or 20% of its budget and expensing the contribution should put this in front of its CPA before filing.
The Form 1120 alternative, and the ruling boards hear about
The 21% corporate rate is lower than the 30% in section 528(b). The Instructions for Form 1120 (2025) put it plainly at Schedule J, line 1a: multiply taxable income by 21% (0.21). Three things stop that from being the end of the analysis.
- The base is different. Section 528(d)(1) computes homeowners association taxable income by starting from gross income excluding exempt function income. Form 1120 has no such exclusion. The assessments go into income, and whether they come back out depends on the association's deductions and on the election below. Applying 21% to the $3,044 in the worked example and calling it $639 would be wrong, because on Form 1120 line 19 would not be $3,044.
- Revenue Ruling 70-604 is narrower than its reputation. Boards are often told the ruling lets an association roll a surplus forward tax free. An IRS Office of Chief Counsel information letter, number 2004-0231, dated November 30, 2004, signed by Joseph H. Makurath, describes the ruling as covering the application of excess assessments to future assessments and says that “this treatment must be elected at a meeting of the shareholder-owners.” A second letter, number 2010-0233, dated September 27, 2010, signed by Michael J. Montemurro, says Rev. Rul. 70-604 does not let a condominium management association exclude from income amounts accumulated in a working capital reserve, and points to Revenue Ruling 75-371. Both letters state on their face that they are informational and are not rulings.
- Form 1120 brings obligations Form 1120-H does not. Estimated tax is the clearest one: the Form 1120-H instructions say those requirements do not apply to electing associations, and the Form 1120 instructions carry the ordinary corporate rules. Form 1120 is also a longer return, which is why preparers price it higher. One published example: PayHOA lists 1120-H preparation from $399 and a full 1120 from $995, read at its own site on October 13, 2026 for our bookkeeping cost comparison.
The election also locks for the year once it is made. The instructions say that once Form 1120-H is filed the association cannot revoke its election for that year unless the IRS consents, that consent is requested by a ruling request, and that a user fee is payable with all ruling requests. There is no cost-free do-over inside the year.
Filing mechanics a treasurer handles
- Who signs. The instructions name the president, vice president, treasurer, assistant treasurer, chief accounting officer, or any other association officer authorized to sign. A volunteer treasurer signing under penalties of perjury is signing for the association, which is a reason to have the numbers checked.
- Paper or electronic. The instructions say an association is required to e-file Form 1120-H if it files 10 or more returns of any type during the calendar year, counting income, employment, excise and information returns, citing Regulations section 301.6011-5. A small association that files one 1120-H and a handful of 1099s is usually under that count and may still file on paper. A waiver of the requirement can be requested.
- Where. The instructions route paper returns by the location of the principal office: Kansas City, MO 64999-0012 for a long list of mostly eastern and midwestern states, Ogden, UT 84201-0012 for the rest, and a P.O. Box in Ogden for a foreign address. Check the address in the current instructions before mailing; service-center addresses move.
- An EIN is required, and the form asks for it. An association that has never had one cannot file without it.
- Whole dollars. The instructions allow rounding to whole dollars.
- Keep the return. Our record retention checklist covers how long, and a filed return plus the reserve-interest statement behind it is one of the documents a new treasurer should receive.
The five questions that need a CPA
A treasurer can gather the figures for Form 1120-H from the books in an afternoon. These five are not treasurer questions, and the cost of getting them wrong is higher than a preparation fee.
- Does the project pass the 85% substantiality test? Measure the square footage or count the lots first, then ask. A mixed-use building is the case to ask about.
- Form 1120-H or Form 1120 on our actual numbers? The comparison needs both returns computed. A CPA who prepares association returns has done it before.
- What should the members have voted on, and when? If a surplus is being carried forward, the Chief Counsel letter above describes the Rev. Rul. 70-604 treatment as elected at a meeting of the owners. Ask what your association needs to do and by when.
- What does our state want? A federal return is not a state return. Requirements differ, and our 49-state comparison table covers governance and reserve rules rather than state tax filing, so this one has to be asked locally.
- What about the years before this one? An unfiled year, or a year filed on the wrong form, does not fix itself. The instructions describe the automatic 12-month extension for a missed election and its 12-month limit. Bring every year you are unsure about to the first conversation.
What this page could not establish
- The text of Revenue Ruling 70-604 itself. It was published in 1970, and we did not find the ruling's own text published free at irs.gov. What we rely on is the two IRS Chief Counsel information letters cited above, which describe it, and we attribute every statement about the ruling to the letter it came from. Both letters say they are not rulings.
- The U.S. Code at the Office of the Law Revision Counsel. On October 15, 2026 uscode.house.gov carried a notice that the site “is currently operating in a temporary format” and its section-level links returned a page-not-found. Section 528 was read instead in the Government Publishing Office's 2024 edition of Title 26 at govinfo.gov, which is an official source, and the text matched the copy at the Legal Information Institute.
- Any state tax requirement. This page is federal only.
- What a preparer should charge. We cite one vendor's published starting prices because they are published. That is a price list, not a market rate.
- Whether the exclusion of a reserve contribution from item D is settled. The instructions address item C and item D separately and we read both. The conclusion in the box above is our reading of how they interact, and we label it as such. We found no IRS statement that resolves it, and a CPA may disagree.
- How an association becomes exempt under section 501(a). The instructions say such an association should not file Form 1120-H. How a community association obtains and keeps that status is outside what we read for this page.
What to do next
Pull two numbers out of your books before you call anyone: the interest the reserve and operating accounts earned for the year, and any money that came from someone who is not an owner. Those two lines are usually the whole return. Then put the deadline in the calendar, April 15 for a calendar-year association, alongside the rest of the year's obligations in our annual operations calendar. If the books do not separate the funds cleanly enough to find those two numbers, start with the chart of accounts and general ledger, which keeps the operating and reserve funds apart by design.
Educational information only. This page describes federal tax rules as published by the IRS and in the Internal Revenue Code and Treasury regulations on the dates shown. It is not legal, tax or accounting advice, it is not a substitute for your governing documents or your state's law, and it does not tell you which return your association should file. Tax rules change. Verify the current instructions at irs.gov and have an association return prepared or reviewed by a licensed CPA. Disclaimer.
Sources
- 26 U.S.C. 528, Certain homeowners associations, U.S. Code 2024 edition, U.S. Government Publishing Office. Read October 15, 2026.
- 26 CFR 1.528-1 to 1.528-10, Homeowners Associations, eCFR. Read October 15, 2026.
- Instructions for Form 1120-H (2025) and Form 1120-H (2025), IRS. Read October 15, 2026.
- Instructions for Form 1120 (2025), IRS, Schedule J line 1a for the 21% rate. Read October 15, 2026.
- Instructions for Form 7004 (December 2025), IRS. Read October 15, 2026.
- IRS Office of Chief Counsel information letter 2004-0231, November 30, 2004, and information letter 2010-0233, September 27, 2010. Read October 15, 2026.
Common questions
Does a small HOA have to file a federal tax return?
Section 528 sets no dollar or unit threshold, and the IRS instructions for Form 1120-H set none. An association that qualifies elects section 528 treatment by filing a properly completed Form 1120-H, and the instructions say the election is made separately for each tax year. An association that does not file that return for a year has not made the election for that year, and the instructions list losing the right to elect as a consequence of filing late. Being small is not a reason not to file. Whether your particular association is required to file, and on which form, is a question for a CPA.
When is Form 1120-H due?
The IRS instructions say an association must generally file by the 15th day of the 4th month after the end of its tax year, which is April 15 for a calendar-year association. An association with a fiscal year ending June 30 files by the 15th day of the 3rd month, September 15. If the due date falls on a Saturday, Sunday or legal holiday the association may file on the next business day. Form 7004 gets an automatic extension, generally 6 months, and the instructions state that the extension does not extend the time to pay.
What is the tax rate on Form 1120-H?
Section 528(b) imposes the tax at 30 percent of homeowners association taxable income, and 32 percent for a timeshare association. The IRS instructions add that the rates apply to both ordinary income and capital gains. The 30 percent applies only to income that is not exempt function income. Membership dues, fees and assessments from owners are exempt function income and are excluded from the base.
What are the 60% and 90% tests for Form 1120-H?
Section 528(c)(1)(B) requires that 60 percent or more of the association's gross income for the year consist of membership dues, fees or assessments from owners. Section 528(c)(1)(C) requires that 90 percent or more of the association's expenditures be for the acquisition, construction, management, maintenance and care of association property. Regulations sections 1.528-5 and 1.528-6 say both are determined after the taxable year closes. The IRS instructions say the 90 percent figure includes current and capital expenditures but excludes expenditures on property that is not association property and transfers of funds held to meet future costs, giving a transfer to a sinking fund to replace a roof as the example.
Is interest on the HOA reserve account taxable?
The IRS instructions for Form 1120-H list interest on amounts in a sinking fund as income that is not exempt function income. For most small associations that interest is the main item on the return, and it goes on line 2 as taxable interest. A specific deduction of $100 is allowed under section 528(d)(2)(A), so an association whose only nonexempt income is $100 or less of reserve interest reaches zero taxable income, and still has to file the return to make the election.
Is Form 1120 ever better than Form 1120-H for an HOA?
The rate is lower. The IRS instructions for Form 1120 say to multiply taxable income by 21 percent, against the 30 percent in section 528(b). The rates are not comparable on their own, because the two returns start from different income. Section 528 excludes membership dues and assessments from gross income; Form 1120 has no such exclusion, so the assessments enter income and come out, if at all, through deductions and through the members' election described in Revenue Ruling 70-604. An IRS Chief Counsel information letter dated September 27, 2010 states that Revenue Ruling 70-604 does not let an association exclude amounts accumulated in a working capital reserve, and points to Revenue Ruling 75-371. Form 1120 also brings estimated tax payments, which the Form 1120-H instructions say do not apply to electing associations. This is a CPA decision, not a board decision.
Text on this page is licensed CC BY 4.0. Suggested citation: CommonKeel, "HOA Tax Return: Form 1120-H or Form 1120, Who Files, and When It Is Due", https://commonkeel.com/finances/hoa-tax-return-form-1120-h/, verified October 15, 2026. Based on 26 U.S.C. 528 at the Government Publishing Office, 26 CFR 1.528-1 to 1.528-10 at the eCFR, and IRS forms, instructions and Chief Counsel information letters, each read on the date shown. The worked example uses illustrative figures and our own arithmetic. Not legal, tax or accounting advice.