1. Florida Statute Chapter 720, known as the Homeowners’ Association Act, governs homeowners’ associations in Florida.
2. The statutory definition of a Florida homeowners’ association is a Florida corporation responsible for operating a community or mobile home subdivision, with membership being a mandatory condition of parcel ownership.
3. HOAs in Florida can choose to be taxed under Section 528 of the Internal Revenue Code or as an ordinary corporation.
4. HOAs must file tax returns by March 15th of every year, with an option to file for an automatic extension using IRS Form 7004.
5. If a HOA owes taxes, it is responsible for paying interest for the period after the March 15 deadline. – A HOA can be taxed as an ordinary corporation if it does not elect to be taxed under IRC § 528.
– Excess assessments are not taxable if members vote to have the excess refunded or applied to the subsequent year’s assessment.
– Assessments for capital improvements may be nontaxable if earmarked specifically for capital improvements and meet certain criteria.
– Income earned on the association’s accumulated funds is taxable.
– All HOA activity related income, including income received to fund future reserves, is not taxable under IRC § 528.
– A HOA can qualify as an organization exempt from federal income tax under IRC §501(c)(4) by meeting certain requirements.
– If a HOA qualifies under IRC § 528 for a taxable year, it can elect a flat 30% tax (32% for time shares) on its taxable income as defined in IRC § 528(d). 1. HOAs can elect to file taxes on Form 1120-H by filing a Form 1120-H with the IRS, which allows them to only pay taxes when it results in a lower tax liability.
2. HOAs in Florida that are required to file federal returns on Form 1120 or elect to do so, must also file a Florida Form F-1120 annually, while HOAs that elect to be taxed under IRC § 528 and file Federal Form 1120-H are not required to file Florida Tax Form F-1120.
3. To qualify as an HOA for tax purposes, an entity must meet specific conditions, including being organized and operated for an exempt function purpose, and having a majority of its income and expenditures for exempt function purposes.
4. Making an election under IRC §528 may result in less taxable income due to the IRC §528 exclusion, but a higher tax liability because of the flat 30% rate, which could be greater than the lowest two corporate tax rates. The form 1120-H instructions suggest choosing the form that results in the lowest tax liability.
https://www.jimersonfirm.com/blog/2016/01/florida-homeowner-associations-and-federal-income-tax-considerations/
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