Key Differences Between Form 1120-H and 1120

Key Differences Between Form 1120-H and 1120


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Description - We are a CPA firm and we do tax preparation for HOAs and community associations. We also provide tax planning services.



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Published 18 August 2017
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Ke yDiffe re n c e sBe twe e nFo rm1120-H an d1120

/HW¶Vthe busa rounda tnot betra ting,a ndbe confusing, frusta xe sca nh, sorting HOAe ve rythingin
be twe e n.With so many tax conside ra tions ,the rea retwo main forms ava ila ble ;1120-H and 1120.
While the former is des igne dfor qualifying HOAs, Form 1120 iscommonly use dby C corporations .
Toda y,ZH¶UHyou neinforma tionimporta ntll thecorre ctlyxe sto file tae dgoing to brea kdown a
without the hea da chetha tnorma llycome swith it!

HOA Rule s

As we know, HOAta xe sa res ome wha tunique intha tyou can file two returns and the forms can be
cha nge de a chye a r.Afte rthis ,ce rta inothe rrule sa pplytha nksto the IRC code se ction528; this
limits what can andFDQ¶Wbe taWith this bexe d.a id,ing s1120-H form caa nly ben ona fte rfile d
me e tingce rta incrite ria .For exa mple ,e xe mptfunction income must make up at lea s t60% ofa ll
gros sincome from the HOA. This is just oneForm 1120-H exa mple .


For themos tpa rt,a n1120-H will bethe bette roption but we have some form 1120-Hpros and
cons below:

Ad va n ta g e sDis a d va n ta g e s

Le s sris k;not grouped in with large corporations for
a uditpurpos e s

No tax on exe m ptfunction income

S om es ta te se xe m pta s s ocia tionsfrom sta teincom e
ta xe s

S im pleta xform compa re dto 1120

Ta xca nbe double that of 1120; 30% compa re dto

S ta teta xe sca na pply

No opportunity to claim NOL(ne tope ra tinglos s );
los s e sca nnotbe take nforwa rd

No deductions under subs e ctionB part VIII

No alte rna tiveminim umta x(AMT) Organiza tiona lcos tsa re n'tde ductible

Im p o rta n tCo n s id e ra tio n s

Whe nlooking for pros and cons ofthe Form 1120,WKH\¶UHthe aite ofthe oppose s s e ntia llybove
ta bles onowOHW¶s invewhe reFormthe rea res omes itua tionss tiga tethe conside ra tions .Ultima te ly,
1120-H is advis e d:

x than Form 1120)s ult$186,000 (this would rer tain loweincome is grexa bletha na te rIf HOA ta
r than $100xa bleincome is loweIf HOA ta
file Form 1120ca nnotthe HOAs ugge s tsx codeIRS taIf the
If thethe nene ga te sdiffe re nceta xfor Form 1120e d
ta xlia bilityIf then conside ringis lower whele ve lof HOA tathe sta texe s
rs loweIf 1120-H offexa tionr tact of AMT on lawith the imparge HOAs

Exe m p tIn c o m e

Once you conside rthe factors laid out above ,you get acle a re ra ns we rof whichyou should follow.
In some sce na rios ,the bes ta ns we rcould actua llybe to flip betwe e nthe two.But there are some
Form 1120-H tips. WithForm 1120-H, many atte mptto convert non-exe mptincome into exe mpt
income and this require sthe following;

xe mptof non-end offsincome are ve nuee ttingby increre ductionme mbe ra s ingRe mova l
a s s e s s me nts
P a s s ingthe 90% tes tby lowering fee and as s e s s me ntincome
a sa s s e s s me nts pe cia le for-time ferge a oneto chaDe cidingoppos e dto doing itµSHU XVH¶

S u m m a ry

Whe the r\RX¶YHtime s ,fifte e ns sthe procedone HOAonce orta xe sca nbe confusing and itGRHVQ¶W
ta kelong before the laptop lid is shut and\RX¶YHe d,If you get confusome thinge ls e .move donto s
GRQ¶Wbe ca us eJ us tre turns .s HOAn 1120d ayou filee a rchto sfra idbe awho fileCP Aqua lifie dfor a
la s tye a r,thisGRHVQ¶Wme a nyou nee dto file this sa meform aga ina rthis yeinve s tiga tes ofinda nd
ZKDW¶Vbe s titua tion!for your syou dons uretha tJ us tma ke¶turns .d tax ret have unfile