An IRS Form 1120-H is the tax filing form used by homeowners associations that want to take advantage of certain tax benefits that allow the association to exclude “exempt function income” from the association’s gross income. Exempt function income consists of membership dues, fees, or assessments from (a) owners of condominium housing units, (b) owners of real property in the case of a residential real estate management association, or (c) owners of timeshare rights to use, or timeshare ownership interests in, real property in the case of a timeshare association. This income must come from the members as owners, not as customers, of the association’s services. Assessments or fees for a common activity qualify but charges for providing services do not qualify.
The election is made separately for each tax year and generally must be made by the due date, including extensions, of the income tax return. Generally, an association must file the Form 1120-H by the 15th day of the 3rd month after the end of its tax year.
If an association does not elect to use the Form 1120-H, it must file an appropriate alternative income tax return such as the Form 1120, U.S. Corporation Income Tax Return. Associations that are tax exempt under Section 501(a) of the Code do not file the Form 1120-H.
An association should always consult a qualified tax professional to make the appropriate elections and timely tax form filings that are required of the association.