Many homeowner and condo associations owe little or no federal income tax, but they generally still have to file a return. For many associations, that return is Form 1120-H, a short form written for homeowners associations. This guide explains who can use it, how the tax is worked out, when it is due, and what the treasurer should do at year end so the return, or the CPA who prepares it, has clean figures to work from.
Tax rules change, and your association's situation may differ from the examples here. The figures below come from the IRS Instructions for Form 1120-H and the Instructions for Forms 1099-MISC and 1099-NEC. Read the current instructions on irs.gov before you file, and talk to your CPA about anything that doesn't fit neatly.
What Form 1120-H is
Form 1120-H is the federal income tax return a qualifying homeowners association can choose to file under section 528 of the tax code. Filing it is the election. The IRS instructions say the election is made separately for each tax year, so the association decides again every year.
The advantage is that dues and assessments paid by members are not taxed. Only the association's other income, usually interest, is taxed at a flat rate after a small deduction.
Who can file Form 1120-H
The association must be a condominium management association or a residential real estate management association (a timeshare association can also file), and substantially all of its units or lots must be homes. It must also pass the following tests each year.
The 60% income test
At least 60% of the association's gross income for the year must be exempt function income. That means membership dues, fees and assessments paid by the owners. If dues make up most of your income, you will usually pass. An association that earns a lot from nonmembers, such as renting a clubhouse or cell tower space to outsiders, should check this test carefully.
The 90% expenditure test
At least 90% of the association's spending for the year must go toward acquiring, building, managing, maintaining and caring for association property. The IRS gives examples such as a manager's salary, gardening, paving, street signs, security guards and property taxes. Transfers into a reserve fund, such as savings for a future roof, are left out of this test entirely. Classify every expense properly during the year. A pile of expenses marked "other" makes this test hard to show.
No private benefit
No member or other individual can profit from the association's net earnings, except through the association's work on its property or a rebate of excess dues or assessments.
What income is taxed
On Form 1120-H, exempt function income (members' dues, fees and assessments) is not taxed. Everything else is. The IRS instructions list examples of income that is not exempt function income, including interest on amounts in a sinking fund (your reserve account) and payments from nonmembers.
The association takes a $100 specific deduction and pays a flat 30% tax on what remains (the rate for timeshare associations is 32%). Your CPA can tell you whether any expenses can be deducted against that income.
A simple example: an association earned $1,200 in interest on its operating and reserve accounts and had no other taxable income. Taxable income is $1,200 minus the $100 deduction, or $1,100. The tax is 30% of $1,100, which is $330.
Form 1120-H or Form 1120
An association does not have to file Form 1120-H. It can file Form 1120, the regular corporate return, instead. The IRS instructions suggest comparing the tax on both forms and filing the one that results in the lower tax. Form 1120 follows the ordinary corporate rules and has its own way of handling dues left over at year end, often based on a member vote. If either test above fails, Form 1120 is the form you file. The better choice depends on your figures, so ask a CPA before you switch forms.
Many states also expect a state return from an association. State rules vary, and Form 1120-H does not cover them.
When Form 1120-H is due
Generally, the return is due by the 15th day of the 4th month after the end of the association's tax year. For a calendar year, that is April 15. The IRS instructions make one exception: an association whose tax year ends June 30 files by the 15th day of the 3rd month, which is September 15. If you need more time, file Form 7004 by the regular due date to request an extension.
1099-NEC forms for vendors
Separate from the association's own return, the association may need to send Form 1099-NEC to contractors it paid during the calendar year, such as a landscaper or a handyman.
- The threshold changed. For payments made in 2026 and reported in early 2027, the reporting threshold is $2,000. For payments made in 2025 and earlier, it was $600.
- The deadline is January 31, both for giving the form to the vendor and for filing it with the IRS.
- Corporations generally don't get one, but attorneys do, even if their firm is a corporation.
- Card payments are left out. Payments made by credit card are reported by the card company on Form 1099-K, so the association leaves them out.
The information for each 1099 comes from the vendor's Form W-9: the legal name, the tax ID number, the tax classification and the address. Ask every new vendor for a signed W-9 before the first payment. Collecting them in January, when you need them, is much harder.
Year-end checklist for the treasurer
Work through these in order. Each step makes the next one easier.
- Record every payment received and every bill paid through the last day of the financial year.
- Reconcile every bank account for every month, so your records match the bank statements.
- Attach a receipt or invoice to every expense, and give each expense a proper category.
- Record bank interest as income and bank fees as expenses.
- Close the year in your books, so nothing dated inside it can change without a recorded reason.
- Run the year's statement of income and expenses and the balance sheet, and keep a copy with the year's records.
- Work out the 60% and 90% tests from those figures, or give the statements to your CPA.
- Total what each vendor was paid in the calendar year, other than by card, and check you have a W-9 from each one over the threshold.
- Send the 1099-NEC forms to vendors and the IRS by January 31.
- File Form 1120-H or Form 1120, and any state return, by the due date, or file for an extension.
- Record any member vote about dues left over at year end in the minutes, and tell your CPA about it.
How HOA in a Box helps at year end
HOA in a Box keeps the association's books on a cash basis, from the same records the treasurer uses all year, so the year-end reports come straight from them. It prepares figures for the board and its CPA. It does not file any return or 1099.
- Form 1120-H Worksheet. A report that shows the 60% income test and the 90% expenditure test, exempt and taxable income, the $100 specific deduction and the tax at 30%, for the association's tax year. Expenses marked "Other" count against the 90% test until they are given a proper category. It is a worksheet to check against the current IRS instructions or to hand to your CPA.
- Statement of income and expenses. Income by what each payment was for, and spending by category, compared with the year before.
- Balance sheet. Cash in each account, what households owe or have paid in advance, deposits held, unpaid bills and the reserve and operating funds at year end.
- Books closing. Once the year is reconciled, the treasurer closes the books through the last day of the year. Nothing paid inside the year can change unless someone reopens it and records a reason.
- Vendor Payments (for 1099s). A report by calendar year that lists what each vendor was paid, separates card payments from other payments, shows each vendor's tax ID and address, and flags who looks due a 1099-NEC.
- W-9 tracking. Each vendor record holds the tax ID, the tax classification and the attached W-9. The vendor's card shows "1099 likely", "No 1099 (corporation)" or "Needs a W-9".
- Bank reconciliation. Interest is recorded as income and bank fees as expenses as part of reconciling, so they reach the reports without being entered twice.
Every report can be printed or downloaded as a spreadsheet for your CPA. The reconciliation work starts with month-to-month bookkeeping, which our guide to collecting HOA dues online covers. See every report on the features page.