Florida is home to thousands of HOA and condo associations. But filing a Florida HOA tax return is not as easy as you may think. Let’s take a closer look.Table of Contents
Contrary to popular belief, homeowner associations are not tax exempt entities at the federal level. Accordingly, they do not receive an IRS tax-exempt letter. Only entities that qualify under code section 501(c)(3) will qualify for tax-exempt status.
When it comes to filing tax returns for an HOA or condominium association, there are generally two options: Form 1120-H and Form 1120. This is a nice advantage that these associations have as most entities do not have a tax filing option. The law prescribes a specific form they are required to file and the entity has no choice in the matter.
But with these two options, questions arise. Which of the two forms has a higher audit risk? Which form will result in the lowest overall tax bill? These questions are more difficult to answer than you may have thought.
Both forms have their advantages and disadvantages. Normally the determining factor is which will yield the lowest tax liability. That is the first thing that any association manager will consider. But in reality, there are many factors that should be carefully examined before determining which form to file.
Florida HOA tax return
Florida has no state personal income tax, but the state has specific tax laws as it relates to HOAs. An HOA or condo association that files a federal corporate return using Form 1120 must file a Florida Corporate Income/Franchise Tax Return using Form F-1120. Alternatively, they can file the Florida Corporate Short Form Income Tax Return using Form F-1120A. They must file one of these tax returns no matter is any tax is due.
The good news is that if the HOA files under federal Form 1120-H they are not required to file a Florida return. Accordingly, most HOAs will be exempt from filing in Florida.
The good news is that there is some flexibility in which forms are filed. The two main forms you can file are form 1120-H and 1120. Both have pros and cons. Ultimately, form 1120-H has been designed specifically for HOAs and condo associations.
But there are some requirements that must be met if you’re to file using this form. For example, gross income from exempt activities must be at least 60% of overall revenue. Furthermore, at least 90% of all expenses must go towards the administration and maintenance of exempt property or facilities.
There are a couple other requirements. But needless to say, most HOAs and condo associations will meet these requirements. A qualified CPA will help you navigate the requirements. If an association does not meet the requirements, they are required to file Form 1120.
Each association is unique and has different characteristics. Board members must ensure that and potential owner of a property within the HOA’s jurisdiction, it falls on your shoulders to file the right taxes each year.
If you fail to do so, not only can there be severe financial penalties to the HOA. As we said previously, there might not be any tax due but it’s always better to file and find out than not file and pay the consequences!
Florida Condo Association Tax
How to file a Florida HOA tax return:
- Identify exempt and non-exempt activities
This step is critical to determining your tax liability and in deciding which form you want to file.
- Determine what IRS form to file
Remember that HOAs have the option to file form 1120 or form 1120-H. Make sure you select the right one for your HOA.
- Determine if you have to file Form F-1120
An association that files Form 1120 must file a Florida return using Form F-1120.
- Hire an experienced CPA
Believe it or not, most CPAs have little experience filing HOA or condo association tax returns.
- Make sure your filing is timely
Late filing penalties can be onerous. Don’t forget to file on time and make sure your payment is timely as well.
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