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HOA 1120-H for MA

  • 28 Apr 2022 11:12 AM
    Message # 12758937

    I have a client who has created an HOA -- for his condo rentals. My question is what are the MA rules for the 1120-H.  This condo association only has exempt income from the condo fees.  So we file an 1120-H for the federal with exempt income federally.  My confusion is for MA..  This is their 2nd year filing this form but my first year doing it.. -- the 1st year was done by another tax preparer and the clients never filed a return for MA..   

    When I called MASS DOR, they informed me that if the client had only exempt income, they did not have to file for MA... Is this correct?  Because when I do the return in my Drake software, its saying that this has to be electronically filed with an excise fee to the state -- for the  HOA... 

    Are there any written guidelines on the state web site.?  I've checked out the MA DOR but haven't found anything that is clearly stated.  

    Just want to make sure clients get this done correctly.

    Appreciate any help!

    Mary Bellia

  • 1 Apr 2023 7:55 AM
    Reply # 13153118 on 12758937




    Advantages of filing form 1120-H:

    1. There is less risk associated with completing form 1120-H. This is because the HOA is filing such a return are not grouped in for audit purposes with large corporations.
    2. The exempt function income of the HOA is not taxable.  However, any income in excess of expenses (whether exempt or not) is taxable under form 1120.
    3. The tax form itself is relatively straightforward and much easier to complete than form 1120.
    4. Certain states exempt associations that file form 1120-H from state income taxes.
    5. HOAs are not subject to the alternative minimum tax (“AMT”) on form 1120-H.

    But there are some pitfalls to filing form 1120-H.  These need to be carefully considered before you file.

    Disadvantages of filing form 1120-H:

    1. Any taxable income of the HOA is taxed at 30%, or 32% for timeshare associations. This is in contrast to form 1120 that is only subject to 15% on the first $50,000 of net income. State taxes have to also be considered.
    2. HOA’s are not able to claim a net operating loss (“NOL”) on form 1120-H. So any loss generated during the years that an 1120-H is filed cannot be carried forward. An NOL generated in a prior year when the association files form 1120 may not be deducted in a year the HOA taxes are filed under form 1120-H. However, it can be carried forward and deducted in subsequent years on form 1120 returns.
    3. Any organizational costs incurred by the HOA are not deductible on form 1120-H.
    4. Associations are not allowed to deduct any amounts under part VIII of subsection B of the tax code. This gets a little tricky but your CPA should understand these rules.

    Incorporated entities that qualify federally as homeowners associations under IRC § 528(c) will continue to file the appropriate Massachusetts corporate form, in the 355 series. Incorporated homeowners associations that qualify as tax exempt under IRC § 501(c)(4) will file the Form M990-T-62. Unincorporated entities that do not qualify as homeowners associations under IRC § 528(c) (such as the so-called "IRC § 277 filers") and that file a federal corporate form (usually the Federal Form 1120) must file a Massachusetts corporate excise return in the 355 series.

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