In today’s post we are going to discuss a very untouched topic: filing HOA taxes in Colorado. After this quick read you should have a better understanding of how to navigate this tricky situation. Each state has its own requirements, ranging wide from strict standards to virtually none. Due to the complexity and lack of readily available information homeowners associations are not a hot subject amongst CPAs and other tax professionals. During this article you will become familiar with the requirements for filing a Colorado HOA tax return.
Even if you have filed a Colorado HOA tax return in previous years you may still find it can be a difficult process that seemingly does not get easier. Part of the challenge that many people face is the task of choosing how to file, each and every year. So not only are we faced with a lack of information but we also have to decide how the HOA will file in the current year. There are two ways an HOA in Colorado can file: (1) to file as a corporation; or (2) to file under IRC Section 528.
Most often HOAs choose to file under IRC Section 528 due to the fact that if almost all the income that is received by the HOA comes from assessments and nearly all of the expenses are from maintaining the properties then there will more than likely to be no tax liability to the group.
To file under IRC Section 528, these few standards must be met:
- At least 85% of the units must be used as residences.
- A minimum of 60% of the association’s gross income must be received from owners in their capacity as homeowners association members and not as customers of goods or services.
- At least 90% of the HOA’s expenses must be for operating and capital expenses that relate to the HOA’s exempt function.
- Any residual income may not be used for the benefit of the members.
These general guidelines span all states, Colorado will have specific requirements to file in that state but this information is good start to put on your way to successfully filing a HOA tax return.
After you have begun to comprehend the always challenging requirements that must be met to file an Colorado HOA tax return it is critical that you look into specific state requirements for Colorado. To best ensure that you will be in compliance with federal and Colorado tax laws be sure to employ a knowledgeable and qualified CPA or tax professional who understands the complex nature of this return.
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