Form 1120-H

What Form 1120-H actually does

A homeowners association is not automatically tax exempt just because it is incorporated as a nonprofit under state law. Federal law treats it like any other taxable corporation unless it qualifies for the special election created by Section 528 of the tax code. Form 1120-H is how a qualifying association makes that election. It lets the association exclude exempt function income, dues, fees, and assessments tied to ownership, from taxable income, so only what is left over gets taxed.

"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

The two tests you have to pass, every year

Being a residential association is not enough on its own. Two thresholds decide eligibility, and both use the whole year's numbers. At least 60% of gross income must be exempt function income, meaning dues where a member's liability comes solely from owning property, not from how much they use the pool or clubhouse. At least 90% of expenses must go toward acquiring, building, managing, maintaining, and caring for association property. An association that rents its clubhouse to outsiders, collects large transfer fees, or spends heavily on unrelated litigation in a given year can fail one of these tests without anyone noticing until tax season.

What still gets taxed, and at what rate

Interest on reserve accounts, rent from non-members, and usage-based facility charges are non-exempt function income, and Form 1120-H taxes all of it even though the reserve itself pays for property upkeep. See interest income and non-exempt income for the full list.

"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 (2025), IRS

The association subtracts a flat $100 specific deduction before applying that rate, and it cannot carry a loss year forward or back the way an ordinary business can.

It is a choice you make every year, not a status

A board that filed Form 1120-H last year is not locked in, and a board that filed Form 1120 last year is not barred from electing 1120-H this year, as long as the tests above are met when the election is made. Filing Form 1120 instead taxes the association's entire income at a flat 21%, with normal corporate deductions and loss carryovers that Section 528 blocks. Which return costs less depends on the numbers for that specific year; see Form 1120 considerations. The return is generally due the 15th day of the 4th month after the tax year ends, April 15 for a calendar-year association, and quarterly estimated payments kick in once expected annual tax reaches $500. See tax filing calendars for the full schedule.