2026 COA and HOA taxes: What association managers need to know

Disclaimer: While this post is intended to provide general information about community association taxes, please note that the information provided here is for general informational purposes only and should not be construed as legal or tax advice. Tax laws and regulations vary by jurisdiction and individual circumstances, so please consult with a qualified tax professional for personalized advice tailored to your specific situation.

Prepping your association’s books for tax season is an important priority for HOA managers, but, with the right planning and know-how, it doesn’t have to be a burden.

In this article, we’ll demystify HOA management taxes, covering what you need to know to prepare effectively, and present a solution to streamline your HOA bookkeeping process.

HOA Taxes: What You Need to Know

Like any other business, HOAs must file tax returns at the federal and state level—even if you have $0 in taxable income. Most HOAs will most likely not have any tax liability as they qualify as a non-profit, but situations can vary and applicable tax rules at the federal and state level can have varying effects on your tax situation.

Are HOAs Tax-Exempt?

HOAs are classified as not-for-profit businesses, but that doesn’t mean they’re automatically tax exempt; in fact, the IRS has a prima facie presumption that an HOA is operated for the benefit of its members and does not qualify for exemption as a social welfare organization. Every HOA and Condo Association still needs to report and file their tax returns and pay any applicable taxes accordingly—unless the HOA has qualified for 501(c)(4) or 501(c)(7) status, which requires them to pass strict not-for-profit guidelines.

Differences Between HOA Taxes and Condo Association Taxes

There is little to no difference in tax treatment for HOAs and condominium associations. A majority of both file either Form 1120 or Form 1120-H, depending on their source of income and expenses dedicated to maintaining the property.

What’s the Difference Between Sections 501(c)(4)s and 501(c)(7)?

HOAs that qualify for 501(c)(4)s are “social welfare organizations,” which operate for the benefit of the general public. To qualify, an HOA must meet strict IRS conditions, including ensuring its common areas are for the use and enjoyment of the general public and not conducting maintenance on private residences. At least 51% of their resources must go toward their primary purpose of benefiting its community, which often includes political lobbying and environmental work.

Although extremely rare, some HOAs may qualify as “social clubs” and meet the 501(c)(7) criteria. This includes golf courses, marinas, parks, or tennis clubs that the IRS describes as “promoting pleasure, social activities, and entertainment.” These tax-exempt HOAs often realize tax benefits that relieve them from tax risks associated with filing Federal Tax Form 1120 and the related state equivalent (more on this later).

Since tax laws around tax-exempt qualification can be vague, it’s best to check with a certified tax professional with expertise in HOA and COA taxes for clarification.

What Tax Forms Should an HOA File?

Luckily, at the federal level, there aren’t too many forms to choose from. While most HOAs file Form 1120-H, there are few exceptions.

HOAs typically choose between two main tax forms. Here’s how they compare:

Form 1120-H Requirements

To use Form 1120-H, your HOA must meet these criteria:

1. Operate to provide construction, acquisition, maintenance, management, or care for association property
2. Have at least 85% of its units earmarked for residential purposes
3. Have 60% of gross income be from exempt functions (member dues, fees, charges)
4. Pass the expenditure test that states that 90% of all expenses should go toward building, acquiring, maintaining, managing, or caring the properties
5. Not have net earnings benefit any shareholders, individuals, or owners

Additional Forms

HOAs structured as partnerships must file Form 1065. If the HOA qualifies as a tax-exempt nonprofit under Section 501(c)(4) or 501(c)(7), it may need to file Form 990. Finally, on top of federal tax forms, HOA may be required to file more forms depending on their respective state regulations.

What Are the Deadlines for Filing HOA Taxes?

Tax returns are due by the 15th of the fourth month after your fiscal year-end, which means April 15th for calendar-year organizations. For HOAs with a fiscal year ending on June 30th, taxes must be filed on the 15th day of the third month after the end of the tax year.

Missing tax deadlines without filing an extension triggers interest and penalties. Key penalties include:

• Late filing penalty: 5% of unpaid tax per month, up to 25% maximum
• Minimum penalty: $485 for returns over 60 days late
• Late payment penalty: 0.5% of unpaid tax per month, up to 25% maximum
• Interest charges: Calculated from due date to payment date, even with extensions

Penalties may be waived if you can demonstrate reasonable cause for the delay.

Reasonable-cause determinations. If the association receives a notice about a penalty after it files its return, send the IRS an explanation and we will determine if the association meets the reasonable-cause criteria. Do not attach an explanation when the association’s return is filed.

Other penalties. Other penalties can be imposed for negligence, substantial understatement of tax, reportable transaction understatements, and fraud. See sections 6662, 6662A, and 6663.

If you miss a deadline, determine how long it’s been since you last filed your tax return. Then, complete your tax return immediately. Once complete, contact the IRS and see if you’re eligible to file Form 1120-H for every missed year. Then file the rest of your missing tax returns from previous years.

Association Manager Responsibilities for HOA Taxes

Managing finances is an important part of being an association manager. General responsibilities usually include:

• Due collection: Manage association fees and charges from HOA members
• Tax filing: Work with a CPA specializing in HOA taxation to prepare and file returns
• Record keeping: Maintain accurate financial records, receipts, and bank statements year-round
• Board communication: Provide regular financial reports and updates to directors

For more ways to help property managers manage HOA taxes, we‘ve prepared a general tax guide that covers top tax deductions, how to report expenses paid through PPP loans, important calendar dates, and more.

Tips to Stay Prepared for HOA Taxes Year-Round

Don’t wait until April to organize your finances. Year-round preparation prevents stress, errors, and costly penalties.

Daily financial tasks should include:

• Record transactions: Log all income, expenses, and payments
• Plan deductions: Track tax-deductible expenses throughout the year
• Reconcile accounts: Match bank statements with your records regularly

Consider association-specific accounting software with pre-built templates and tax filing tools to reduce errors and save time.

Here are some additional ways to stay prepared year-round.

Prepare for HOA Taxes Early

The first and most obvious way to get ahead on tax season is to prepare well before the filing deadline. An organized bookkeeping system will help avoid last-minute mistakes and penalties. Keep your important financial records and documents in a secure location. Similarly, keep your digital files on a secured server or software with safeguards in place.

Be Familiar With Tax Laws

Federal, state, and local tax laws can change. For example, the minimum penalty for HOAs that fail to file their taxes within 60 days of the deadline increased to $485 in 2024. Stay up-to-date and stay compliant by reading the latest documentation on IRS.gov or speaking with a certified tax professional.

Hold Regular Board Meetings on HOA Taxes

Hold regular board meetings and ensure tax preparation and finances are a priority. Learn the ins and outs of your HOA’s governing documents and bylaws and ensure your association is adhering to them.

Use Tax-Advantaged Accounts

Tax-advantaged accounts like reserved funds or capital improvement funds to address unexpected expenses, make significant improvements, and lower your tax liability. Consult with a certified tax professional to determine the best options available to you.

Technology to Help With HOA Taxes

As we’ve covered in this article, filing your HOA management taxes is more than bookkeeping. It’s about building a system to manage your HOA effectively. HOA management software can help you streamline and automate most of those mundane processes. Here are a few features you should consider when shopping for one.

Communication Tools

Effective HOA management software automates and tracks communication with homeowners, non-owner residents, and board members in one platform. Whether it be email, mail, and text, it’s important that your software can merge all your communication in one place, while being able to organize and share documents securely.

Accessible Libraries

It’s important that your board members can find your by-laws, policies, and meeting minutes easily. An effective software can help you manage permissions that allow specific individuals to access sensitive information, like financial reports and legal documents.

Automated Bookkeeping

Collecting rent and association fees online can cut payment processing time up to 70 percent. Having an all-in-one property accounting solution also helps you categorize expenses, track payments, and reconcile your accounts all in one platform. Be sure you can also itemize your expenses so you know which ones are tax deductible come tax season.

Get Ahead on Tax Season

Being proactive with your taxes helps you avoid penalties and audits, and gives you peace of mind knowing you’ve taken advantage of all possible tax-saving opportunities.

Key Takeaways

• HOAs must file federal and state tax returns even with zero taxable income, with most filing Form 1120-H (30% flat tax rate) or Form 1120 (complex corporate return with lower rates under $50K).
• Tax returns are due by the 15th day of the fourth month after fiscal year-end, with late filing penalties starting at 5% per month and minimum penalties of $485 for returns over 60 days late.
• Most HOAs operate as non-profit businesses but are not automatically tax-exempt unless they qualify for 501(c)(4) social welfare organization status or 501(c)(7) social club status under strict IRS guidelines.
• Year-round financial preparation including daily transaction recording, account reconciliation, and association-specific accounting software prevents costly errors and penalties during tax season.

As we covered in this article, streamlining your HOA operations plays a critical role in that. Whether it’s collecting rent online or communicating more effectively with your board, HOA management software such as Buildium can help you prepare for tax season and stay confident about your books year round.

Not a Buildium customer? Schedule a guided demo to see how our platform can simplify your HOA tax preparation, or start a free 14-day trial today–no credit card required.

Frequently Asked Questions About HOA Taxes

What exactly is the HOA tax?

HOA taxes are the business taxes the association pays to the government, separate from member dues.

Do HOA fees include taxes?

No, HOA dues cover common area services only. Homeowners pay their individual property taxes separately.

Are all HOAs tax-exempt?

No, most HOAs must file tax returns despite being non-profits. Only some qualify for tax-exempt status under 501(c)(4) or 501(c)(7).