Federal HOA taxation

Every association starts out as a taxable corporation

There is no default tax exemption for a homeowners association. Federal law treats every association as an ordinary taxable corporation unless it qualifies for, and elects, the special regime in Section 528 of the tax code.

Qualifying for Section 528 is not automatic and not permanent. An association that never elects it, or that fails the income and expense tests in a given year, is simply a regular corporation filing the standard Form 1120, the same return a small business files.

"A homeowners association shall be subject to taxation under this subtitle only to the extent provided in this section."

Source: 26 U.S.C. Section 528, Legal Information Institute, Cornell Law School

Incorporating as a nonprofit under state law does not change any of this. Nonprofit status is a state law status; federal tax exemption is a separate federal question, and most associations do not have it.

Two federal paths, chosen fresh every year

A qualifying association chooses, fresh every year, between two federal returns. Form 1120-H lets it exclude exempt function income, membership dues and assessments not tied to using a specific facility, from taxable income entirely. Form 1120 taxes everything, but allows the ordinary deductions and loss carryovers Section 528 blocks.

"The taxable income of a homeowners association that files its tax return on Form 1120-H is taxed at a flat rate of 30% for condominium management associations and residential real estate management associations. The tax rate for timeshare associations is 32%."

Source: Instructions for Form 1120-H, IRS

The election is made by filing a timely return on the chosen form. Filing Form 1120-H one year does not lock the association into it the next, and using Form 1120 does not bar a future election, provided the association meets the qualification tests each year it elects. See Form 1120 considerations for when the regular return actually produces less tax.

Federal tax is one of five separate layers

Getting the federal return right says nothing about four other layers a board must clear separately.

State income tax treatment of associations, and whether your state has anything resembling the federal Section 528 election, vary by state; confirm with a CPA licensed there. See State tax returns. Sales and use tax on association purchases or facility fees is likewise a state and local question.

Your association's state corporate registration, including keeping a current registered agent, a required in-state contact with a physical address for service of process, is a separate compliance track from any tax return. See Registered agents and Corporate registrations.

Federal beneficial-ownership reporting, once believed to reach community association board members, was eliminated for all U.S.-formed entities by a 2026 FinCEN final rule. See Beneficial-ownership and compliance developments.

And whether the association needs an audit, a review, or a compilation is typically set by state statute or the association's own governing documents, not by the tax code.