North Dakota HOA and condo associations are required to file tax returns. Associations may be regisistered as non-profit entities at the state level, but they still must file. Filing returns can be done using either Form 1120 or 1120 – H. All corporations were generally required to file Form 1120 before the Tax Reform Act of 1976; all HOAs and COAs were treated as For-Profit corporations.
Tax Reform Act of 1976 specifically created Section 528 of the Internal Revenue Code (IRC), creating Form 1120 – H. It is specifically designed for Homeowner Associations and is much easier to complete even by self-managed HOAs. The following reasons should make any North Dakota HOA or COA prefer Form 1120 – H over Form 1120.
North Dakota HOA Tax Tips
All corporations are required to file Form 1120, U.S. Corporation Income Tax Return every year. This form is a little complex for homeowner and condo associations, requiring some level of accounting and bookkeeping that most HOAs and COAs do not keep.
HOAs are also required to make an estimate of their payable tax, and as pointed out, due to lack of proper bookkeeping, will be a difficult task to accomplish. All HOA and COA also income becomes taxable; any funds set aside or in excess of expenditure will be taxed.
HOAs and condo associations can file Form 1120–H if they qualify under IRC section 528, have to fulfill the following requirements. Most associations qualify and prefer to use this fairly simple and inexpensive form.
• At least 85% of the units (homes, condos, etc.) are used as residential.
• At least 60% of the revenue is from association members and NOT in the sale of goods or the performance of services.
• Over 90% of the association expenses support the management and maintenance of association property.
• Any residual income or profit may not be used for the benefit of association members.
North Dakota Condo Association Tax Return
HOAs and COAs in North Dakota have their income from members exempted from income taxes for both federal and state filings. Membership income is derived from members for services like preservation, maintenance or management of the association. They are generated from: association fees and dues, fines or other assessments from HOA committees, interest on late assessments, and resident clubhouse and other facility rentals.
To enjoy the above advantages, HOA and condo associations should make an election every year by timely filing form 1120 – H. The form must be filed by its due date, which is April 15th for an HOA with a calendar tax year.
Extension to file Form 1120–H can be made by filing Form 7004 with the IRS by the original due date of the return, HOAs can be granted an additional six months to file Form 1120 – H. If an HOA fails to file Form 1120 – H by its due date, they will be forced to file Form 1120 that year, and also pay penalties for late submission.
Form 1120 – H simplifies tax filing for most North Dakota HOAs and COAs. It is a safe form for associations to file as it has no tax risk if the association meets the IRS requirements. IRS Form 1120 is not specifically designed for HOAs, but associations might consider filing it. Form 1120 has appeal as a result of lower marginal tax rates compared to Form 1120–H. They, however, have the liberty to file the form with lower tax.