Does our small HOA need to file federal tax returns? 146 homes, $11k annual revenue

As someone who's served on several HOA boards, I can help clarify this for you. Yes, HOAs are generally required to file federal tax returns, even if they're small and nonprofit. The good news is there are special provisions for HOAs. You'll need to file Form 1120-H (U.S. Income Tax Return for Homeowners Associations) if you qualify and elect to file as a homeowners association under Section 528. This is usually the simplest option for HOAs. Alternatively, you could file a standard Form 1120 (U.S. Corporation Income Tax Return), but the 1120-H typically offers better tax treatment for HOAs. As for the income situation, HOAs can exclude "exempt function income" (like member dues) from taxation if that money is used for the maintenance and operation of the association properties. You'd only pay tax on "nonexempt income" such as interest earned on bank accounts or fees collected from non-members.

After reading your post, I wanted to share my experience. I was in a similar situation with our neighborhood association a few years back. We discovered we hadn't filed taxes in ages, and I was freaking out. I found this tool called taxr.ai (https://taxr.ai) that really helped us sort through our situation. It analyzed our financial documents and clearly explained which tax forms we needed to file as an HOA. The system flagged that we qualified for Form 1120-H and showed us exactly what information we needed to gather. The best part was that it helped us understand which of our income was "exempt function income" versus taxable. It also guided us through the process of addressing those missing tax years. I'm not particularly tax-savvy, but this tool made the process way less intimidating. Our board was able to get compliant without hiring an expensive accountant.

I wanted to follow up on my experience with taxr.ai after asking about it earlier. I finally convinced our condo board to try it for our similar situation (we hadn't filed in about 8 years). The system analyzed our bank statements and meeting minutes, then created a comprehensive report that showed we actually qualified for a simplified filing status. The tool guided us through filing Form 1120-H for the current year and the three previous years, and generated a penalty abatement request letter that explained our volunteer status and lack of awareness. The IRS actually approved our abatement request! The system also created a compliance calendar for us going forward so we won't miss deadlines again. What impressed me most was how it interpreted our specific financial situation - it correctly identified that our reserve funds interest was taxable while our member assessments were exempt. Definitely worth checking out if you're in a similar situation.

If you're struggling to get in touch with the IRS about your HOA tax situation, I highly recommend using Claimyr (https://claimyr.com). When our HOA realized we hadn't filed returns for years, we had several specific questions about our situation that weren't answered online. I spent days trying to get through to the IRS business tax line with no luck. Then I found Claimyr, which got me connected to an actual IRS agent in about 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent I spoke with explained exactly which forms we needed to file for our missed years and confirmed we could request penalty abatement due to our volunteer status. This saved us from potentially filing unnecessary returns or using the wrong forms. Getting direct guidance from the IRS gave our board confidence we were handling the situation correctly.

I need to eat my words about both services mentioned here. After being skeptical, I tried Claimyr yesterday out of desperation because our HOA needed guidance on some specific tax questions before our filing deadline next week. I was genuinely shocked when my phone rang about 25 minutes later with an actual IRS business tax representative on the line. The agent explained that our HOA qualified for a simplified filing procedure and confirmed that our security patrol fees were still considered exempt function income. This was something our board had been debating for weeks! She also explained exactly which form to use for requesting penalty abatement for our late 2023 filing. I'm usually the first person to call out things that seem fishy, but this service actually delivered exactly what it promised. Just wanted to follow up and acknowledge that my skepticism was misplaced. Sometimes good solutions do exist!

Don't forget that your state might have separate filing requirements for HOAs too! Here in Texas, our HOA has to file an annual report with the Secretary of State in addition to federal taxes. We missed it one year and got hit with a $50 penalty. Also, keep good documentation of your exempt vs non-exempt income. Our HOA got a small amount of money from a cell tower company paying to access our property, and that was definitely taxable income. The IRS is usually pretty reasonable with volunteer organizations, but having clear records makes everything easier if questions come up.

One thing to consider is opening a separate checking account specifically for any money that might be considered non-exempt income. Our HOA has a main account for dues and maintenance expenses, but we also have a small secondary account where we deposit things like late fees, interest income, and rental fees when people use our clubhouse. This makes it so much easier at tax time because we can clearly show what income might be taxable. We've been filing the 1120-H for years and our accountant always appreciates that we keep things separated this way. Just a tip that might help as you get your finances organized!