Form 1120-H vs Form 1120: Which Tax Return Should Your HOA File?

Most small HOAs file Form 1120-H. It's a short federal return that leaves member dues untaxed and taxes everything else at a flat 30%. An association can use it only if it passes two tests each year. Form 1120, the regular corporate return, taxes at 21% and can cost less in some years.

• Form 1120-H: dues and assessments from owners aren't taxed. Other income, like bank interest, is taxed at 30% after a $100 deduction.
• Who qualifies: at least 60% of income from member dues, and at least 90% of spending on the property.
• Deadline: the 15th day of the 4th month after your year ends. That's April 15 for a calendar year.
• Form 1120: a 21% rate, more paperwork, and rules that need a preparer who knows HOAs.

Does a small HOA have to file a federal tax return?

Almost always, yes, every year, even if it owes nothing. Most HOAs are taxed like corporations, so the IRS expects a return. The common choice is Form 1120-H, made by filing it on time. A few associations have IRS tax-exempt status and file a different form; if yours does, your preparer will know.

Not filing has a cost. The IRS instructions set a late-filing penalty of 5% of the unpaid tax for each month late, up to 25%, with a minimum penalty (the smaller of the tax due or $525) for returns more than 60 days late.

What is Form 1120-H?

Form 1120-H is a simplified return for homeowners associations, created by section 528 of the tax code. The return lets an association treat member dues, fees and assessments as "exempt function income", so they aren't taxed. Only the other income counts.

Form 1120-H is an election, not a status. The association chooses it again each year by filing Form 1120-H by the due date, extensions included. Once made for a year, it can't be revoked without IRS consent.

Who qualifies for Form 1120-H? The 60% and 90% tests

Three kinds of associations can file: condominium management associations, residential real estate management associations (most HOAs), and timeshare associations. Each year, the association must also pass these tests from section 528:

A typical dues-funded HOA passes easily. The tests matter when an association earns a lot of outside income, such as renting the clubhouse to the public or leasing a roof to a cell carrier, or spends heavily on things other than the property.

What income is taxed on Form 1120-H?

Only income that isn't exempt function income. IRS regulations define exempt function income as amounts received solely as dues, fees or assessments from owner-members. Everything else is taxable, including:

• Interest: the 1120-H instructions list interest on sinking fund (reserve) money as taxable.
• Nonmember income: fees from people who aren't owners, like a public pool pass or a clubhouse rental to outsiders.
• Other outside income: a cell tower lease, laundry or vending commissions.

A worked example

Say your HOA collects $60,000 in dues and earns $1,200 in interest on its reserve account. The dues aren't taxed. The interest is:

• Taxable income: $1,200 − the $100 specific deduction = $1,100
• Tax at 30%: $330

Deductions connected to that taxable income can lower it further. Ask your preparer which ones apply. The 1120-H also doesn't allow a net operating loss deduction.

When can Form 1120 cost less?

Form 1120 taxes at 21% instead of 30%, so it can win when an association has a lot of taxable income. The trade-off is complexity. On Form 1120, member income isn't automatically exempt, and the association needs other rules to keep a dues surplus from being taxed.

The usual tool is IRS Revenue Ruling 70-604. As HOA tax practitioners describe it, it lets an association that follows its conditions apply excess member income to the next year's assessments, or refund it, instead of paying tax on it. How that election is made, and whether reserves are covered, is exactly where a preparer who knows HOAs earns their fee.

Many CPAs who work with HOAs run the numbers both ways each year. That's general practice advice, not an IRS rule, but it's a good question to ask yours.

When is Form 1120-H due?

The 15th day of the 4th month after the association's tax year ends (the 3rd month if the year ends June 30). For a calendar-year HOA, that's April 15. Form 7004 extends the time to file, but not the time to pay any tax owed.

Two differences from Form 1120 help a small board:

• No estimated tax payments. The 1120-H instructions say estimated tax doesn't apply to Form 1120-H. Form 1120 filers generally pay estimated installments if they expect to owe $500 or more.
• Paper filing is still allowed for most small HOAs. E-filing is required only for filers of 10 or more returns of any type in a year.

What if we missed the deadline?

Talk to a preparer right away. Because the election is made by filing on time, a late return can cost the association its 1120-H election for that year. The 1120-H instructions describe an automatic 12-month extension to make the election in some cases, if the association takes corrective action. Whether it fits your situation is a question for your preparer, not a blog post.

Does our state want a return too?

Often, yes. Many states have their own corporate or nonprofit filings, and some have an annual report as well. They're separate from the federal return. Check with your state's revenue department and secretary of state, or ask your preparer.

What does our preparer need from the treasurer?

Clean books for the full year, split into member income and everything else. Bring:

• Income by type: dues and assessments separate from interest, rentals and other outside income.
• Spending by category: so the preparer can check the 90% test.
• Bank and reserve statements: for the interest figure.
• Last year's return: and any letters from the IRS.

A chart of accounts that keeps those lines apart makes this easy. Ours, in the HOA chart of accounts template, already separates member dues from interest. The monthly treasurer report keeps the year's numbers ready.

Where GnomeOwner fits

If your board uses GnomeOwner, the Reports page has a Tax Packet view of the Financial Report. It shows the two Form 1120-H tests and an income classification worksheet for your preparer to confirm. The compliance calendar includes the federal return as a yearly deadline, so it doesn't sneak up on the board. GnomeOwner doesn't file taxes. Your preparer still signs the return.

Quick answers

Do HOAs pay tax on dues? Not on Form 1120-H. Dues and assessments from owner-members are exempt function income. Other income is taxed at 30%.

What is the 60/90 test? At least 60% of income must come from member dues, and at least 90% of spending must go to the association's property. Both are checked every year.

Is Form 1120-H or Form 1120 better? For most small, dues-funded HOAs, Form 1120-H is simpler. Form 1120's 21% rate can win with lots of taxable income. A preparer can compare both.

Is the interest on our reserve account taxable? On Form 1120-H, yes. The IRS instructions list interest on sinking fund money as taxable income.

Can a board member prepare the return? Form 1120-H is short, and some small HOAs prepare it themselves. Many still use a CPA, especially in a year with unusual income or a missed deadline.

Read how to run a self-managed HOA for the rest of the treasurer's year.

---

This guide is general information, not tax or accounting advice. Rules vary by state and by association. Ask your CPA about your situation. Sources: IRS, Instructions for Form 1120-H, tax year 2025 (irs.gov/instructions/i1120h); Internal Revenue Code § 528 and § 11(b); Treas. Reg. § 1.528-9; IRS, Instructions for Form 1120. Revenue Ruling 70-604 as described by HOA tax practitioners. Accessed October 2026.