Filing taxes for Homeowners Associations can be a difficult and frustrating process to navigate. Hopefully after this quick read you will be heading down the road to successfully filing an HOA tax return in Montana. Often our frustration stems from the lack of instruction readily available to the public.
The questions surrounding these tax returns are hard to answer and can be difficult to answer too because each state has its own specific requirements. Throughout this article you will become familiar with the federal requirements for HOA returns in Montana.
Even if you have filed a Montana HOA tax return in previous years, the process can still present its challenges and never seem to get simpler. The little information that is easily accessible in this tax area has a big impact on your ability to file correctly.
This is a complex task that has varying requirements in each and every state, sometimes not have any additional specifications in one to having tedious and numerous ones in another.
Another issue that plagues Homeowners Association tax returns is the fact that each year the HOA must decide whether to file either one of two different ways.
HOAs can be filed at in two different ways when it pertains to filing a tax return:
To file as a corporation OR to file under IRC Section 528.
Most HOAs opt for 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.
Once you have begun to grasp the always difficult federal requirements for HOA tax returns it is crucial that you take a look at the often overlooked tax issues presented by each individual state. To best ensure that you are in compliance with Montana state tax laws be sure to employ a qualified CPA or tax professional who understands these complexities.
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