After reading this article you will be heading down the road to successfully filing an HOA tax return for Washington. The questions pertaining to filing taxes for homeowners associations can be tricky and often go unanswered. Just like individual tax returns each state can have its own unique requirements.
Often even tax professionals go unaware of these specific requirements, but throughout this article you will become familiar with some of the basic steps you need to take in order to file an HOA tax return in Washington. The most important of which may be the due date.
Even if you have filed a HOA tax return in previous years the tedious process never lessens its load. The lack of information that is made readily available to people looking to file an HOA tax return in Washington is sparse and will always present a challenge to filers.
The complexity of the task in each state ranges, one state may have little or no requirements while another may have extreme requirements. One other issue you can run into is the fact that each year the HOA has to determine whether they will file either one of two ways.
HOAs tax returns can be filed in two different ways when it pertains to filing a tax return:
- To file as a corporation.
- To file under IRC Section 528.
Most HOAs choose to file using the second option presented. When filing under IRC section 528 the HOA can often have little or no tax liability if nearly all the income received comes from assessments and most of the expenses are from maintenance costs. In order to qualify to file under IRC Section 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.
This is the beginning to understanding how to complete a compliant HOA tax return in the state of Washington. It is critical to research more on the specific requirements in Washington, to ensure you are in compliance with Washington tax laws be sure to employ a qualified CPA or tax professional who is well versed in this complicated tax area.
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