This article will help guide you to filing a Kansas HOA tax return. Tax issues surrounding homeowners associations are usually difficult to navigate, especially because each state has differing requirements. In the past, we have discussed the tax return extensively, but have often omitted information pertaining to the state filing requirements of HOAs. Throughout this post we will become familiar with the federal requirements as well as the Kansas requirements.
Whether you have filed a Kansas HOA tax return before or not, the process unfortunately never gets easier. The lack of information readily available in this tax area is the source of the challenges we face when trying to file. This is a complex task that has different expectations in each state, from not having any filing requirements to complex requirements. Another thing that complicated homeowner association tax returns is the fact that each year the HOA has to decided to file either one of two ways.
HOAs can be looked at in two different ways when it pertains to filing a tax return:
- To file as a corporation.
- To file under IRC Section 528.
Kansas HOA tax return: The Tips & Tricks
Most HOAs choose the second option because under IRC Section 528 if nearly all the income received comes from assessments and most of the expenses are from maintenance work then there will be more no tax liability. To qualify under IRC 528, the following 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 HOA 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.
Now that we understand HOA filing at a federal level, let’s learn about the specific requirements that are present in the state of Kansas.
Once you have begun mastering the sometimes difficult federal HOA requirements it is critical that you examine the often overlooked tax issues presented by each individual state. To ensure you are in compliance with Kansas HOA tax return laws be sure to employ a qualified CPA or tax professional who understands tax planning.
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