Filing a homeowners association tax return can be a tricky process for most people. The complexity of the matter often stumps people, in this article we will take a look at one of the first steps that is taken when filing a New Mexico HOA tax return.
Tax professionals are typically well versed in the discussion of tax returns in depth but rarely do they talk much on the information surrounding HOA tax returns. Hopefully through reading this you will be on you way to comprehending this complex tax return and on your way to the next step of successfully completing one with compliance to New Mexico state laws.
Even though you may have filed a New Mexico HOA tax return in the past, the process may still challenge you each year. Part of this challenge is deciding on how you will file the return.
When filing there are two different approaches you may be able to take. Sadly, information on the matter is often not easily made available to people, in this article we will discuss what is best for HOAs and if you will be able to meet the requirements.
HOAs can file tax returns in two different ways: (1) to file as a corporation; or (2) to file under IRC Section 528.
Most HOAs will opt to file under the second option as under IRC Section 528 they may be able to have little to no tax liability. If nearly all the income for the association is received from assessment and almost all of the expenses are from maintaining the properties then filing under IRC section 528 would be a good tax strategy for the HOA.
Before making this decision though you need to make sure that your New Mexico HOA qualifies by meeting the following standards:
- 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.
This choice is relevant in all states, New Mexico will also have additional requirements that need to be met in order to be in compliance with the state filing regulations. This information we have touched on is a good start to finding success with your HOA tax return filing.
Now that you have a basis for understanding the complex process of filing a New Mexico HOA tax return, it is critical that you set out to discover the state specific requirements in New Mexico. To ensure that you meet these requirements it is best to use a CPA or other tax professional who will be able to assist you during this process.
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