Tax issues surrounding homeowners associations can often be difficult to navigate, especially when requirements for filing differ by state. These state tax issues can frequently go overlooked, but they are equally as important as the federal HOA tax requirements we have discussed.
Some states may not require any filing for homeowners associations, while others require filing as well as taxation on the income of the association. This post will explore the specific Oregon HOA tax return filing requirements.
Federal requirements for forming and filing for HOAs
Homeowners associations may either file as a C-Corporation (NOT an S-Corporation) or file under Section 528 of the Internal Revenue Code (IRC). Under IRC § 528, there is no tax liability if almost all income received is from assessments and expenses are used almost entirely for maintaining the association property. Most associations choose this option, so long as they qualify under the following criteria:
- 85% or more of the units must be used as residences.
- At least 60% of the income received is from homeowners in their capacity as HOA members (NOT as customers of goods or services).
- A minimum of 90% of the HOA’s expenses must be for operating and capital expenses directly related to the exempt function of the association.
- Any residual income cannot be used to benefit association members.
Oregon HOA tax return filing requirements
Now that we have discussed the qualifications of a tax-exempt homeowners association at the federal level, we can explore the filing requirements of an Oregon HOA tax return.
Under the Oregon Revised Statute (ORS) 317.067, federal tax-exempt status for homeowners associations organized and operated under IRC § 528 also exempts the associations from state tax on exempt function income as defined by the IRS.
An HOA that elects to be treated as a tax-exempt organization is subject to OR corporation tax when it has positive taxable income (excluding any exempt function income) above the specific deduction of $100. These associations are required to file the Oregon Corporation Excise Tax Return (Form OR-20) with a copy of their Form 1120-H. The HOA will be subject to the greater of the calculated corporation excise tax or minimum tax.
Corporation minimum tax ranges from $150 for Oregon taxable sales income of less than $500,000 to $100,000 for Oregon sales exceeding $100 million. This minimum tax is computed based only upon Oregon sales included in the nonexempt gross income reported on federal Form 1120-H.
However, an association is not subject to the minimum tax, nor is it required to file Form OR-20, if there is no nonexempt function income, or if the allowed deductions exceed gross income. In order to elect tax-exempt status in these cases, the HOA must submit a copy of the filed Form 1120-H to the Oregon Department of Revenue no later than the due date of the Oregon return.
Once you have begun navigating the sometimes difficult federal HOA requirements, it is important to understand the often-overlooked tax issues presented by each state. Make sure you employ a qualified CPA or tax professional who understands these complexities to ensure compliance with Oregon HOA tax return filing requirements.
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Make sure you understand Oregon HOA tax return filing requirements.