Community management companies are diligent about filing tax returns for their HOA clients. I know this because I prepare a lot of those returns for our community management company. Unfortunately, self-managed associations often don’t know about the requirement, and therefore don’t file the returns. My estimate is that at least 25% of self-managed associations don’t file any tax returns, and others don’t follow the correct process.
Community and homeowner associations, just like any other US corporation, must file federal and state tax returns each year. Just because most associations are considered non-profit doesn’t absolve them of their income reporting responsibility. In fact, late, missing, or incorrect tax returns could result in unnecessary taxes, IRS penalties, and loss of non-profit status.
Most residential community associations elect to be taxed under Section 528 of the Internal Revenue code. To qualify, your association needs to be legally organized as an association, generate almost all revenue from homeowner assessments, and use that revenue to maintain the common areas. If this describes your association, most income is not taxable, including:
- Association dues and assessments.
- Late fees and interest on late assessment payments.
Other community association income is taxable like bank account interest, but often that income can be offset by expenses used to generate that income.
Community association tax returns are due by March 15th (or the next business day if March 15th falls on a weekend) for most communities, or 3.5 months after the fiscal year-end for communities that don’t follow calendar year accounting. In all cases, you can also file for a six-month extension if you need more time to prepare your tax returns.