Source:
https://hoatax.com/irs-form-1120h-understanding-tips/
https://hoatax.com/?sumo_email_id=f09650d1-1224-4140-887d-fd30b4065a85&utm_campaign=sumo-email
Advantages of filing form 1120-H:
- 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.
- 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.
- The tax form itself is relatively straightforward and much easier to complete than form 1120.
- Certain states exempt associations that file form 1120-H from state income taxes.
- 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:
- 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.
- 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.
- Any organizational costs incurred by the HOA are not deductible on form 1120-H.
- 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.
https://www.mass.gov/technical-information-release/tir-10-3-taxation-of-unincorporated-homeowners-associations
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.
