IRS form 1120-H

Started by DebbieT • 2 replies • 3300 views

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DebbieT (Indiana)
Posts: 3

Posted:

We are a small community in Indiana and this is our first tax form. Our only income is from homeowner's dues and barely cover our expenses for taxes, insurance, and mowing for the common areas. We have a basic checking account, but so far haven't had a large enough balance for any interest or any savings. I have read all the instructions for the 1120-H form and my understanding is that we don't have anything other than exempt function income so our gross income would be zero and we don't owe any income tax. Is this true of most HOA's for their beginning years or am I not reading the instructions correctly? Thanks for your help - I have learned so much from reading your forums!!

RogerB (Colorado)
Posts: 5,067

Posted:

DebbieT, you are right about the amount owed if there was no interest income there is no tax owed. So what tax is your community paying? Beginning HOA's need a budget which provides income for a reserve fund increase each year.

With form 1120-H the income from interest or dividends is taxable at 30% after deductions. Besides the standard $100 deduction, the previous years taxes paid and any cost for tax preparation (shouldn't have any when using 1120-H) are deductable. Some HOA's take another 10% deduction based on the 1989 Concord Consumers Cooperative Case referenced in the CAI Ledger, fall of 2000. I think this deduction is highly questionable when they list a deduction which is greater than the total income from interest, dividends, and other investments.

RogerB

DebbieT (Indiana)
Posts: 3

Posted:

Thanks for the information. We have 7 small parcels of common area which Indiana charges property tax on individually. These are undeveloped grassy areas and retention ponds. What is the most common percentage for the reserve fund per year? I tried to call the IRS to see if we are required to file a return if there is no income to be taxed and no tax due - but I couldn't get through.

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