Many Iowa homeowner and condo associations do not know about the requirement to file tax on their association and therefore do not file. An estimated 35% of Iowa HOAs and condo associations don’t file, and if they file, they are using a wrong process. Most of these are the self-managed associations. This is what members should know about your association’s tax requirements and how to file accurately and timely.
Each corporate entity organized under the laws of Iowa or qualified to do business within this state or doing business within Iowa, shall file a true and accurate return of its income or loss for the taxable period. The return shall be signed by the president or other duly authorized officers.
If the corporation was inactive or not doing business within Iowa, although qualified to do so, during the taxable year, the return must contain a statement to that effect.
Iowa HOA Tax Filing Options
Homeowner and condo associations described Internal Revenue Code Section 527 which are domiciled in this state and are required to file Form 1120 and pay federal corporate income tax are subject to Iowa corporations’ income tax to the same extent as they are subject to federal corporate income tax.
Homeowner and condo associations described in Internal Revenue Code Section 528 which are domiciled in this state and are required to file federal Form 1120–H and pay federal corporate income tax are subject to Iowa corporation income tax to the same extent as they are subject to federal corporate income tax.
This is a comprehensive term that includes all activities or any transactions for the purpose of financial or pecuniary gain or profit. Irrespective of the nature of its activities, every corporation organized for profit and carrying out any of the purposes of its organization shall be deemed to be “doing business.”
In determining whether a corporation is doing business, it is immaterial whether its activities actually result in a profit or loss. Taxable income is generated from:
- Interest from banks and dividends.
- Guest fees, such as golf-course usage.
- Renting facilities like a clubhouse.
- Payment for easements, like cell towers.
Exempt-function income must be generated from:
- Association dues and assessments.
- Fines and fees from the Architectural Control Committee.
- Any delinquency or late fees on late assessment payments.
- Resident clubhouse and other facility rentals.
To arrive at the net taxable amount, the association should deduct expenses incurred to generate this taxable income. A $100 standard deduction is allowed on any taxable income.
Electing to File Form 1120–H
By filing Form 1120–H, Iowa homeowner associations find themselves with a reduced tax burden. To enjoy this, an association must file Form 1120 – H annually, before its due date, including extensions. Once an association has filed Form 1120 – H, they cannot revoke it unless IRS consents to it.
Should an association fails to timely file Form 1120–H by the due date, they may permanently lose the right to file Form 1120–H. At this point, they will be forced to file Form 1120 and may incur late payment penalties.