U.S. Income Tax Return for Homeowners Associations

2010

Department of the Treasury
Internal Revenue Service

Instructions for
Form 1120-H
U.S. Income Tax Return for Homeowners Associations
Section references are to the Internal
Revenue Code unless otherwise noted.

How To Get Forms
and Publications

Electing To File Form
1120-H

What’s New

Internet. You can access the IRS
website 24 hours a day, 7 days a week, at
IRS.gov to:
• Download forms, instructions, and
publications;
• Order IRS products online;
• Research your tax questions online;
• Search publications online by topic or
keyword; and
• Sign up to receive local and national
tax news by email.

A homeowners association elects to take
advantage of the tax benefits provided by
section 528 by filing a properly completed
Form 1120-H. 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.

Beginning January 1, 2011, associations
must use electronic funds transfers to
make all federal tax deposits (such as
deposits for employment tax and income
tax). Forms 8109 and 8109-B, Federal
Tax Coupon, cannot be used after
December 31, 2010. See Electronic
deposit requirement on page 3.

Photographs of
Missing Children
The Internal Revenue Service is a proud
partner with the National Center for
Missing and Exploited Children.
Photographs of missing children selected
by the Center may appear in instructions
on pages that would otherwise be blank.
You can help bring these children home
by looking at the photographs and calling
1-800-THE-LOST (1-800-843-5678) if you
recognize a child.

Unresolved Tax Issues
The Taxpayer Advocate Service (TAS) is
an independent organization within the
IRS whose employees assist taxpayers
who are experiencing economic harm,
who are seeking help in resolving tax
problems that have not been resolved
through normal channels, or who believe
that an IRS system or procedure is not
working as it should. The service is free,
confidential, tailored to meet your needs,
and is available for businesses, as well as
individuals.
The association can contact the TAS
as follows.
• Call the TAS toll-free line at
1-877-777-4778 or TTY/TDD
1-800-829-4059 to see if the association
is eligible for assistance.
• Call or write the association’s local
taxpayer advocate, whose phone number
and address are listed in the local
telephone directory and in Pub. 1546,
Taxpayer Advocate Service – Your Voice
at the IRS.
• File Form 911, Request for Taxpayer
Advocate Service Assistance (And
Application for Taxpayer Assistance
Order), or ask an IRS employee to
complete it on the association’s behalf.
For more information, go to www.irs.
gov/advocate.

IRS Tax Products DVD. You can order
Pub. 1796, IRS Tax Products DVD, and
obtain the following:

• Current-year forms, instructions, and

publications.
• Prior-year forms, instructions, and
publications.
• Tax Map: an electronic research tool
and finding aid.
• Tax Law frequently asked questions.
• Tax Topics from the IRS telephone
response system.
• Internal Revenue Code – Title 26 of
the U.S.Code.
• Fill-in, print, and save features for most
tax forms.
• Internal Revenue Bulletins.
• Toll-free and email technical support.
• Two releases during the tax year.
– The first release will ship in early
January.
– The final release will ship in early
March.
Buy the DVD from National Technical
Information Service (NTIS) at www.irs.
gov/cdorders for $30 (no handling fee) or
call 1-877-233-6767 toll free to purchase
the DVD for $30 (plus a $6 handling fee).
By phone and in person. You can
order forms and publications by calling
1-800-TAX-FORM (1-800-829-3676). You
can also get most forms and publications
at your local IRS office.

General Instructions
Purpose of Form
A homeowners association files Form
1120-H as its income tax return to take
advantage of certain tax benefits. These
benefits, in effect, allow the association to
exclude exempt function income (defined
later) from its gross income.
Cat. No. 24935G

This extension does not extend the
time to pay the tax.
Once Form 1120-H is filed, the
association cannot revoke its election for
that year unless the IRS consents. The
association may request IRS consent by
filing a ruling request. A user fee must be
paid with all ruling requests. For more
information on ruling requests, see Rev.
Proc. 2011-1, 2011-1 I.R.B. 1.
If the association does not elect to use
Form 1120-H, it must file the applicable
income tax return, for example, Form
1120, U.S. Corporation Income Tax
Return.
A homeowners association should
compare its total tax computed on Form
1120-H with its total tax computed on
Form 1120. The association may file the
form that results in the lowest tax.
Automatic 12-month extension to
make election. If the homeowners
association fails to make the regulatory
election to be treated as a homeowners
association, it can get an automatic
12-month extension to make the section
528 election, provided corrective action is
taken within 12 months of the due date
(including extension) of the return. See
Regulations section 301.9100-2 for more
information.
Tax rate. The taxable income of a
homeowners association that files its tax
return on Form 1120-H is taxed at a flat
rate of 30% for condominium
management associations and residential
real estate associations. The tax rate for
timeshare associations is 32%. These
rates apply to both ordinary income and
capital gains.
If the association is tax exempt under
section 501(a), do not file Form 1120-H.
See section 6033 and related regulations.
If the association loses its exempt status,
see Regulations section 1.528-8(e).

Definitions
Homeowners association. There are
three types of homeowners associations.
1. A condominium management
association organized and operated to
acquire, build, manage, maintain, and
care for the property in a condominium
project substantially all of whose units are
homes for individuals.
2. A residential real estate
management association organized and
operated to acquire, build, manage,
maintain, and care for a subdivision,
development, or similar area substantially
all of whose lots or buildings are homes
for individuals.
3. A timeshare association (other than
a condominium management association)
organized and operated to acquire, build,
manage, maintain, and care for the
property that has members who hold a
timeshare right to use, or a timeshare
ownership interest in, real property of the
timeshare association. A timeshare
association cannot be a condominium
management association.
See Regulations section 1.528-4 for
information regarding the “substantially
all” test for condominium management
associations and residential real estate
management associations.
To qualify as a homeowners
association, the following must apply.
• At least 60% of the association’s gross
income for the tax year must consist of
exempt function income (defined later).
• At least 90% of the association’s
expenses for the tax year must consist of
expenses to acquire, build, manage,
maintain, or care for its property, and, in
the case of a timeshare association, for
activities provided to, or on behalf of,
members of the timeshare association.
• No private shareholder or individual
can profit from the association’s net
earnings except by acquiring, building,
managing, or caring for association
property or by a rebate of excess
membership dues, fees, or assessments.
• The association must file Form 1120-H
to elect under section 528 to be treated
as a homeowners association.
Association property. Association
property includes real and personal
property that:
1. The association holds,
2. The association’s members hold in
common,
3. The association’s members hold
privately within the association, and
4. Is owned by a governmental unit
and is used to benefit the unit’s residents.
Timeshare association property
includes property related to the timeshare
project that the association or its

members have rights to use. These rights
must arise out of recorded easements,
covenants, or other recorded instruments.
For more information, see Regulations
section 1.528-3.
Taxable income. Taxable income is the
excess, if any, of:
1. Gross income for the tax year,
excluding exempt function income, over
2. Allowed deductions directly
connected with producing any gross
income except exempt function income.
Allowed deductions include a specific
$100 deduction. The following are not
allowed:
• Net operating loss deduction
(section 172).
• Deductions under part VIII of
subchapter B (special deductions for
corporations).
If facilities are used (or personnel are
employed) for both exempt and
nonexempt purposes, see Regulations
section 1.528-10.
Exempt function 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.
Examples. In general, exempt function
income includes assessments made to:
1. Pay principal, interest, and real
estate taxes on association property.
2. Maintain association property.
3. Clear snow from public areas and
remove trash.
Income that is not exempt function
income includes:
1. Amounts that are not includible in
the organization’s gross income other
than under section 528 (for example,
tax-exempt interest).
2. Payments from nonmembers.
3. Payments from members for
special use of the organization’s facilities,
apart from the use generally available to
all members.
4. Interest on amounts in a sinking
fund.
5. Payments for work done on
nonassociation property.
6. Members’ payments for
transportation.

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For more information, see Regulations
section 1.528-9.

When To File
Generally, an association must file Form
1120-H by the 15th day of the 3rd month
after the end of its tax year.
If the due date falls on a Saturday,
Sunday, or legal holiday, the association
may file on the next business day.
Private delivery services. You can use
certain private delivery services
designated by the IRS to meet the “timely
mailing as timely filing/paying” rule for tax
returns and payments. See the
instructions for Form 1120 for details.
Extension. File Form 7004, Application
for Automatic Extension of Time To File
Certain Business Income Tax,
Information, and Other Returns, to
request a 6-month extension of time to
file.
If the association elects to file
Form 1120-H, it should file for
CAUTION
extension on Form 7004 using the
original form type assigned to the entity.

!

Who Must Sign
The return must be signed and dated by
the president, vice-president, treasurer,
assistant treasurer, chief accounting
officer, or any other association officer
(such as tax officer) authorized to sign.
If a return is filed on behalf of an
association by a receiver, trustee, or
assignee, the fiduciary must sign the
return, instead of the association officer.
Returns and forms signed by a receiver or
trustee in bankruptcy on behalf of an
association must be accompanied by a
copy of the order or instructions of the
court authorizing signing of the return or
form.
If an association officer completes
Form 1120-H, the paid preparer space
should remain blank. Anyone who
prepares Form 1120-H but does not
charge the association should not
complete that section. Generally, anyone
who is paid to prepare the return must
sign it and fill in the “Paid Preparer Use
Only” area.
The paid preparer must complete the
required preparer information and:
• Sign the return in the space provided
for the preparer’s signature.
• Give a copy of the return to the
taxpayer.
Note. A paid preparer may sign original
or amended returns by rubber stamp,
mechanical device, or computer software
program.
Instructions for Form 1120-H

Where To File
File the association’s return at the
address listed below.
If the association’s
principal business,
office, or agency is
located in:

Use the following
address:

Connecticut,
Delaware, District of
Columbia, Georgia,
Illinois, Indiana,
Kentucky, Maine,
Maryland,
Massachusetts,
Michigan, New
Hampshire, New
Jersey, New York,
North Carolina, Ohio,
Pennsylvania, Rhode
Island, South
Carolina, Tennessee,
Vermont, Virginia,
West Virginia,
Wisconsin

Department of the
Treasury
Internal Revenue
Service Center
Cincinnati, OH
45999-0012

Alabama, Alaska,
Arizona, Arkansas,
California, Colorado,
Florida, Hawaii,
Idaho, Iowa, Kansas,
Louisiana, Minnesota,
Mississippi, Missouri,
Montana, Nebraska,
Nevada, New Mexico,
North Dakota,
Oklahoma, Oregon,
South Dakota, Texas,
Utah, Washington,
Wyoming

Department of the
Treasury
Internal Revenue
Service Center
Ogden, UT 84201-0012

A foreign country or
U.S. possession

Internal Revenue
Service Center
P.O. Box 409101
Ogden, UT 84409

(including any additional tax liability), or
otherwise represent the association
before the IRS.
The authorization will automatically
end no later than the due date (excluding
extensions) for filing the association’s
2011 tax return. If the association wants
to expand the paid preparer’s
authorization, see Pub. 947, Practice
Before the IRS and Power of Attorney.

Other Forms and
Statements That May Be
Required
See the Instructions for Form 1120 and
Pub. 542, Corporations, for a list of other
forms and statements the association
may be required to file.

Assembling the Return

Paid Preparer
Authorization
If the association wants to allow the IRS
to discuss its 2010 tax return with the paid
preparer who signed it, check the “Yes”
box in the signature area of the return.
This authorization applies only to the
individual whose signature appears in the
“Paid Preparer Use Only” section of the
return. It does not apply to the firm, if any,
shown in that section.
If the “Yes” box is checked, the
association is authorizing the IRS to call
the paid preparer to answer any
questions that may arise during the
processing of its return. The association
is also authorizing the paid preparer to:
• Give the IRS any information that is
missing from the return,
• Call the IRS for information about the
processing of the return or the status of
any related refund or payment(s), and
• Respond to certain IRS notices about
math errors, offsets, and return
preparation.
The association is not authorizing the
paid preparer to receive any refund
check, bind the association to anything
Instructions for Form 1120-H

Attach Form 4136, Credit for Federal Tax
Paid on Fuels, to Form 1120-H. Attach
schedules in alphabetical order and
additional forms in numerical order after
Form 4136.
Complete every applicable entry space
on Form 1120-H. Do not write “See
Attached” instead of completing the entry
spaces. If more space is needed on the
forms or schedules, attach separate
sheets using the same size and format as
the printed forms. If there are supporting
statements and attachments, arrange
them in the same order as the schedules
or forms they support and attach them
last. Show the totals on the printed forms.
Enter the association’s name and EIN on
each supporting statement or attachment.

Accounting Methods
Figure taxable income using the method
of accounting regularly used in keeping
the association’s books and records. In all
cases, the method used must clearly
show taxable income. Permissible
methods include cash, accrual, or any
other method authorized by the Internal
Revenue Code.
Change in accounting method. To
change its method of accounting used to
report taxable income (for income as a
whole or for the treatment of any material
item) the association generally must file
Form 3115, Application for Change in
Accounting Method. For more
information, see Form 3115 and Pub.
538, Accounting Periods and Methods.
There are some instances when the
association can obtain automatic consent
from the IRS to change to certain
accounting methods. See Rev. Proc.
2008-52, 2008-36 I.R.B. 587, as
amplified, clarified, and modified by Rev.
Proc. 2009-39, 2009-38 I.R.B. 371. Also,
see the Instructions for Form 3115.
Note. If the association is filing an
application for a change in accounting
method filed on or after January 10, 2011,
for a year of change ending on or after
April 30, 2010, see Rev. Proc. 2011-14,
2011-4 I.R.B. 330.

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Change of Tax Year
Generally, an association must get the
consent of the IRS before changing its tax
year by filing Form 1128, Application To
Adopt, Change, or Retain a Tax Year.
However, under certain conditions, an
association can change its tax year
without getting the consent.
For more information on change of tax
year, see the Instructions for Form 1128
and Pub. 538.

Rounding Off to Whole
Dollars
The association can round off cents to
whole dollars on its return and schedules.
If the association does round to whole
dollars, it must round all amounts. To
round, drop amounts under 50 cents and
increase amounts from 50 to 99 cents to
the next dollar (for example, $1.39
becomes $1 and $2.50 becomes $3).
If two or more amounts must be added
to figure the amount to enter on a line,
include cents when adding the amounts
and round off only the total.

Payment of Tax (Line 24)
The association must pay any tax due in
full no later than the 15th day of the 3rd
month after the end of the tax year. Do
not include the payment with the tax
return.
Electronic deposit requirement.
Beginning January 1, 2011, associations
must use electronic funds transfers to
make all federal tax deposits (such as
deposits of employment, excise, and
income tax). Forms 8109 and 8109-B,
Federal Tax Coupon, cannot be used
after December 31, 2010. Generally,
electronic funds transfers are made using
the Electronic Federal Tax Payment
System (EFTPS). However, if the
association does not want to use EFTPS,
it can arrange for its tax professional,
financial institution, payroll service, or
other trusted third party to make deposits
on its behalf. Also, it may arrange for its
financial institution to initiate a same-day
tax wire payment (discussed below) on its
behalf. EFTPS is a free service provided
by the Department of the Treasury.
Services provided by a tax professional,
financial institution, payroll service, or
other third party may have a fee.
To get more information about EFTPS
or to enroll in EFTPS, visit www.eftps.gov,
or call 1-800-555-4477. Additional
information about EFTPS is also available
in Pub. 966, The Secure Way to Pay Your
Federal Taxes.
Depositing on time. For deposits
made by EFTPS to be on time, the
corporation must initiate the deposit by 8
p.m. Eastern time the day before the date
the deposit is due. If the corporation uses
a third party to make deposits on its
behalf, they may have different cutoff
times.
Same-day wire payment option. If
the association fails to initiate a deposit

transaction on EFTPS by 8 p.m. Eastern
time the day before the date a deposit is
due, it can still make the deposit on time
by using the Federal Tax Application
(FTA). Before using the same-day wire
payment option, the association will need
to make arrangements with its financial
institution ahead of time. Please check
with the financial institution regarding
availability, deadlines, and costs. To learn
more about making a same-day wire
payment and download the Same-Day
Wire Worksheet, visit www.eftps.gov.

Estimated Tax and
Alternative Minimum Tax
These items do not apply to homeowners
associations electing to file Form 1120-H.
However, a homeowners association that
does not elect to file Form 1120-H may be
required to make payments of estimated
tax. Because the election is not made
until the return is filed, Form 1120-H
provides lines for estimated tax payments
and the crediting of overpayments against
tax if estimated tax payments or
overpayments apply.

Interest and Penalties
Interest. Interest is charged on taxes
paid late even if an extension of time to
file is granted. Interest is also charged on
penalties imposed for failure to file,
negligence, fraud, substantial valuation
misstatements, substantial
understatements of tax, and reportable
transaction understatements from the due
date (including extensions) to the date of
payment. The interest charge is figured at
a rate determined under section 6621.
Late filing of return. In addition to
losing the right to elect to file Form
1120-H, a homeowners association that
does not file its tax return by the due date,
including extensions, may be penalized
5% of the unpaid tax for each month or
part of a month the return is late, up to a
maximum of 25% of the unpaid tax. The
minimum penalty for a return that is over
60 days late is the smaller of the tax due
or $135. The penalty will not be imposed
if the association can show that the failure
to file on time was due to reasonable
cause. Associations that file late should
attach a statement explaining the
reasonable cause.
Late payment of tax. An association
that does not pay the tax when due
generally may be penalized 1/2 of 1% of
the unpaid tax for each month or part of a
month the tax is not paid, up to a
maximum of 25% of the unpaid tax. The
penalty will not be imposed if the
association can show that the failure to
pay on time was due to reasonable
cause.
Other penalties. Other penalties can be
imposed for negligence, substantial
understatement of tax, reportable
transaction understatements, and fraud.
See sections 6662, 6662A, and 6663.

Specific Instructions
Period covered. File the 2010 return for
calendar year 2010, and fiscal years that
begin in 2010 and end in 2011. For a
fiscal or short tax year return, fill in the tax
year space at the top of the form.
The 2010 Form 1120-H can also be
used if (a) the association has a tax year
of less than 12 months that begins and
ends in 2011 and (b) the 2011 Form
1120-H is not available at the time the
association is required to file its return.
The association must show its 2011
tax year on the 2010 Form 1120-H and
take into account any tax law changes
that are effective for tax years beginning
after December 31, 2010.
Name and address. Enter the
association’s true name (as set forth in
the charter or other legal document
creating it), address, and EIN on the
appropriate lines. Include the suite, room,
or other unit number after the street
address. If the post office does not deliver
mail to the street address and the
association has a P.O. box, show the box
number instead.
If the association receives its mail in
care of a third party (such as an
accountant or an attorney), enter on the
street address line “C/O” followed by the
third party’s name and street address or
P.O. box.
Employer identification number (EIN).
Enter the association’s EIN. If the
association does not have an EIN, it must
apply for one. An EIN may be applied for:
• Online — Click on the EIN link at
www.irs.gov/businesses/small. The EIN is
issued immediately once the application
information is validated.
• By telephone at 1-800-829-4933 on
Monday through Friday from 7:00 a.m. to
10:00 p.m. in the association’s local time
zone.
• By mailing or faxing Form SS-4,
Application for Employer Identification
Number.
If the association has not received its
EIN by the time the return is due, enter
“Applied for” and the date you applied in
the space for the EIN. For more details,
see the Instructions for Form SS-4.
Note. Only associations located in the
United States or U.S. possessions can
use the online process.
Final return, name change, address
change, or amended return.
• If the association ceases to exist, file
Form 1120-H and check the “Final return”
box.
• If the association changed its name
since it last filed a return, check the box
for “Name change.”
• If the association has changed its
address since it last filed a return
(including a change to an “in care of”
address), check the box for “Address
change.”
• To amend a previously filed Form
1120-H, file a corrected Form 1120-H and
check the “Amended return” box.

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Note. If a change in address occurs after
the return is filed, use Form 8822,
Change of Address, to notify the IRS of
the new address.
Item A. Type of homeowners
association. See Definitions on page 2.
Item B. 60% gross income test. At
least 60% of the association’s gross
income for the tax year must consist of
exempt function income. See Exempt
function income on page 2.
Item C. 90% expenditure test. At least
90% of the association’s expenditures for
the tax year must consist of expenses to
acquire, build, manage, maintain, and
care for property, and in the case of a
timeshare association, for activities
provided to, or on behalf of, members of
the timeshare association. Include current
and capital expenditures. Use the
association’s accounting method to figure
the total.
Include:
1. Salary for an association manager
or secretary.
2. Expenses for gardening, paving,
street signs, security guards, and property
taxes assessed on association property.
3. Current operating and capital
expenditures for tennis courts, swimming
pools, recreation halls, etc.
4. Replacement costs for common
buildings, heating, air conditioning,
elevators, etc.
Do not include expenditures for
property that is not association property.
Also, do not include investments or
transfers of funds held to meet future
costs. An example would be transfers to a
sinking fund to replace a roof, even if the
roof is association property.
Item D. Enter the association’s total
expenditures for the tax year including
those expenditures directly related to
exempt function income. Use the
association’s accounting method to figure
the entry for item D.
Item E. Show any tax-exempt interest
received or accrued. Include any
exempt-interest dividend received as a
shareholder in a mutual fund or other
regulated investment company.
Line 15. Other deductions. Expenses,
depreciation, and similar items must not
only qualify as items of deduction, but
must also be directly connected with the
production of gross income to be
deductible in computing the unrelated
taxable income.
Line 21. Tax credits. The association
may qualify for the following tax credits:
• Foreign tax credit (Form 1118).
• Qualified electric vehicle credit (Form
8834).
• General business credit (Form 3800).
Note. Homeowners associations cannot
claim the investment credit.
Enter the total applicable credits on
line 21 and attach the appropriate form(s).
Line 22. Total tax. If the association
must recapture any low-income housing
Instructions for Form 1120-H

credit, qualified electric vehicle credit, or
new markets credit, include the amount of
the recapture in the total for line 22. To
the right of the entry space, write “LIHTC,”
“QEV,” or “NMTC,” “recapture,” and the
amount. For details, see Form 8611,
Recapture of Low-Income Housing Credit;
Regulations section 1.30-1 (regarding the
qualified electric vehicle credit); or Form
8874, New Markets Credit.
Line 23g. Total payments. Add the
amounts on lines 23c through 23f and
enter the total on line 23g.
Refundable credit from Form 3800. A
homeowners association can elect to
claim an additional research tax credit
instead of claiming any additional
first-year special depreciation allowance
for eligible qualified property or eligible
extension property. If the association
makes the election, include the amount
from line 19c of Form 3800 in the total for
line 23g. Enter “Refundable credit from
Form 3800”next to the entry space for line
23g.
Backup withholding. If the association
had income tax withheld from any
payments it received because, for

Instructions for Form 1120-H

example, it failed to give the payer its
correct EIN, include the amount withheld
in the total for line 23g. This type of
withholding is called backup withholding.
Show the amount withheld in the blank
space in the right-hand column between
lines 22 and 23g, and write “Backup
Withholding.”
Paperwork Reduction Act Notice. We
ask for the information on this form to
carry out the Internal Revenue laws of the
United States. You are required to give us
the information. We need it to ensure that
you are complying with these laws and to
allow us to figure and collect the right
amount of tax.
You are not required to provide the
information requested on a form that is
subject to the Paperwork Reduction Act
unless the form displays a valid OMB
control number. Books or records relating
to a form or its instructions must be
retained as long as their contents may
become material in the administration of
any Internal Revenue law. Generally, tax
returns and return information are
confidential, as required by section 6103.

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The time needed to complete and file
this form will vary depending on individual
circumstances. The estimated average
time is:
Recordkeeping . . . . . . . .
Learning about the law or
the form . . . . . . . . . . . . .
Preparing the form . . . . . .
Copying, assembling, and
sending the form to
the IRS . . . . . . . . . . . . . .

.

11 hr., 57 min.

.
.

5 hr., 19 min.
13 hr., 12 min.

.

2 hr., 9 min.

If you have comments concerning the
accuracy of these time estimates or
suggestions for making this form simpler,
we would be happy to hear from you. You
can write to the Internal Revenue Service,
Tax Products Coordinating Committee,
SE:W:CAR:MP:T:T:SP, 1111 Constitution
Ave. NW, IR-6526, Washington, DC
20224. Do not send the tax form to this
office. Instead, see Where To File on
page 3.