1120-H Line 12 Deductions

Started by JeffB21 • 7 replies • 282 views

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JeffB21 (Washington)
Posts: 22

Posted:

In 2023 our HOA earned interest income (actually classified as dividends) and we filed an 1120-H, paying $559 in federal income tax.

I'm in the process of preparing our 2024 1120-H and am wondering if I can deduct that amount on line 12.

In general terms it's my understanding that I can deduct expenses related to the "creation" of non-exempt income.

The IRS instructions I've found don't seem to touch on line 12 (for some reason), at least what I've found so far.

TIA

Jeff

ElleN (Idaho)
Posts: 1,334

Posted:

No, your HOA cannot deduct the federal income tax for 2023 that you paid in 2024. Look at Form 1120 (sic) and its instructions. On Form 1120 Line 17 you will see "taxes and licenses" listed as a deduction, just like on Form 1120-H. Now see the instructions for Form 1120 Line 17 at https://www.irs.gov/pub/irs-pdf/i1120.pdf. At the latter you will see that federal income taxes are //not// among the taxes that may be deducted.

JeffB21 (Washington)
Posts: 22

Posted:

Thanks for your reply and for pointing me towards the documentation. Very helpful and confirms what others have said.

I was very surprised to see a deduction for federal taxes paid in 2024 for taxable income earned in 2023.

As happy as I was to be saving our HOA some bucks, I was also somewhat skeptical and began poking around to see if we could actually take this deduction.

Now, off to chat with our tax person.

Jeff

ElleN (Idaho)
Posts: 1,334

Posted:

Quote:

Posted By JeffB21 on 02/06/2025 9:30 AM
I was very surprised to see a deduction for federal taxes paid in 2024 for taxable income earned in 2023.

As happy as I was to be saving our HOA some bucks, I was also somewhat skeptical and began poking around to see if we could actually take this deduction.

Now, off to chat with our tax person.

Care to share the credentials of your tax person?

You are sharp to question this.

Ya know it is a general tax principle that federal income taxes that one has paid are not deductible, with the exception of some portion of self-employment FICA taxes.

You are welcome.

JeffB21 (Washington)
Posts: 22

Posted:

She's a CPA and a Master Tax Advisor with HRB.

I just got off the phone with her and she's standing by her work.

ElleN (Idaho)
Posts: 1,334

Posted:

Quote:

Posted By JeffB21 on 02/06/2025 11:45 AM
She's a CPA and a Master Tax Advisor with HRB.

I just got off the phone with her and she's standing by her work.

CPAs have fallen mightily in my esteem since I have come to know more of them in recent years.

I am nothing special when it comes to taxes, except I volunteered with VITA for several years and am better than a layperson at looking things up; reading/understanding tax code; and keeping several things in mind at once (due to other demanding professional experience). Take that for what it is worth from a total internet Rand-O (me), of course. I can make mistakes and I have made mistakes.

Other sites seem to be consistent with what I say above. E.g.:

https://hoatax.com/irs-form-1120h-understanding-tips/

https://www.vintti.com/blog/1120-h-navigating-the-us-income-tax-return-for-homeowners-associations

https://www.reddit.com/r/HOA/comments/1brw9ej/nc_sfh_1120h_deductions_and_interest_from_bank_cds/

The bigger challenge is working with a busy "professional" who has one opinion while you beg to differ. You are an unpaid volunteer with no CPA letters after your name. The latter does not help.

You have not asked for further advice, so just saying: I am not sure what I would do if I were in your shoes. Volunteers on a board do not like getting into the minutiae of subjects like this. They will not like second-guessing a professional.

I sure would want to try another tax preparer. If this CPA will not even consider the 1120 instructions here, that's an enormous flaw on several levels AFAIC.

No comment on HRB. If I did comment, the moderators would take it down.

DeanJ
Posts: 1,786

Posted:

People make a big deal over HOA tax returns. The risk of an HOA being audited is a fraction of 1%.

JeffB21 (Washington)
Posts: 22

Posted:

Thanks for your reply! I couldn't agree more.

It a message I've been unable to get across to our board.

With only 53 members and no depreciable assets, we're a pimple in the greater scope of things.

Thus the involvement of a tax pro in preparing our 1120-H.

So it goes.

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