The association's federal return
Associations normally file Form 1120-H, the federal return designed for homeowners and condominium associations under Internal Revenue Code section 528. The return lets a qualifying association exclude its exempt function income from tax. That is, broadly, the assessments, dues, and fees it receives from members in their capacity as owners.
Other income is generally taxable. Under the IRS instructions, that includes interest, including interest earned on reserve accounts, and income from non-members, such as fees paid by outside parties to use association facilities.
For a plain-language explanation of the form, see Form 1120-H for associations.
Qualifying each year
Filing Form 1120-H is an election the association makes separately for each tax year, by filing the completed return, generally by its due date including extensions. To qualify, the IRS instructions require, among other things, that:
- At least 60 percent of the association's gross income for the year is exempt function income.
- At least 90 percent of its expenditures for the year are for acquiring, building, managing, maintaining, and caring for association property.
- No private shareholder or individual profits from the association's net earnings, other than through those activities or a rebate of excess assessments.
Because the tests apply each year, the return reflects that year's income and spending.
When the return is due
The IRS instructions state that an association generally must file Form 1120-H by the 15th day of the 4th month after the end of its tax year. For a December 31 year-end, that is generally April 15. An association whose tax year ends June 30 must file by the 15th day of the 3rd month after year-end.
The return is separate from the annual financial report Florida requires. That report has its own deadlines, explained on Florida reporting deadlines.
How the return relates to the financial statements
The return and the financial statements come from the same records for the same fiscal year. When the association's audit, review, or compilation is complete, its statements are a natural starting point for the return.
The two serve different purposes. The financial statements follow generally accepted accounting principles and report on all of the association's funds. The return follows federal tax rules, which separate exempt function income from taxable income. Some amounts may therefore be presented differently on the return than in the statements.
Tax preparation is not an attest service. Completing the return does not provide any assurance on the association's financial statements.
Records typically needed
Requests vary with each association. Most returns draw on the following: