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| *Ostroff, Fair and Company>>>United States Taxes |
Can I use form 1120-H for a HOA? |
The HOA is brand new and 50% of the HOA dues goes to a fund to replace streets, fences. After reading the instructions for 1120-H it seems that 90% of fees expenditures must happen the same year. Due to the buildup of the replacement fund I have to file 1120 instead, is that correct? 1120-H is the right form for a Home Owner's Association. Here's the form and instructions: http://www.irs.gov/pub/irs-pdf/f1120h.pd... You're supposed to use form 1120 as a general rule, but as an HOA, you have the option of electing to file 1120-H, and you have to decide on the election each year. To qualify, at least 60% of your income must meet the definition of "exempt function" income as an HOA. You also have to meet the 90% rule for expenses as defined. It's not 90% of fees expenditures, it's 90% of total expenses. Be careful how you apply these rules. Income taxes are "cash basis" and corporations are "accrual basis". You have to convert your accruals to "cash basis" (if you have any) before you fill out your forms. You don't have to worry about your build-up of funds. All you have to do is calculate your total expenses for the year, and if 90% qualify, you're good. The cash you have coming in is either revenue or financing. While it's in the bank it's a cash reserve (not income or expense). When you spend it, it's either an expense or a payment on a loan. The expenses are the amounts consumed during operations. If you're confused about the definitions, you can e-mail me. If you're involved in construction and you need to know how to calculate your expenses for unfinished projects, it's not too difficult, it just takes practice. |
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