HOA taxes in Massachusetts

Started by SherwinL • 6 replies • 4270 views

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SherwinL (Massachusetts)
Posts: 2

Posted:

I'm new to HOAs and I'm in a newly formed 3-unit HOA. We are all newbies to this.

The only income for our HOA were the condo fees. We have a bank account with no interest. I figured that we should file a 1120H for federal taxes, but am a bit confused on the state taxes. Can anybody in similar HOAs share their experience here?

Is it common for small HOAs to hire a CPA? Is it worth the fees they charge?

Do most small HOAs elect to file for tax-exempt status?

Any info is appreciated. Thanks!

MaryA1 (Arizona)
Posts: 7,043

Posted:

Sherwin,

I wouldn't worry about petitioning the IRS for tax-exempt status. When filing the 1120-H you only pay taxes on exempt-function income, which is generally on interest on savings accounts and there is an automatic $100 deduction. You would have to have over $100 in interest b/4 you would be liable for paying any tax and you've stated you have no interest income.

I always recommend hiring a CPA to do the taxes because my personal feeling is that the treas. should not be resp for accepting that liability. As I said that is just my personal opinion. It has nothing to do with how hard -- or how easy -- it is to prepare the taxes. In fact I worked as an accountant at a CPA firm for many years and did corp. taxes all the time but when I served as assn treas we always hired a CPA. Some CPA firms will give you a special rate for doing both the taxes and an annual audit, review or compilation which is always a good idea to do each year.

If your state has a state income tax then the HOA would be resp. for filing a tax return. You can check with your state treas to find out what form should be used and how the tax is computed.

RogerB (Colorado)
Posts: 5,067

Posted:

Sherwin, HOAs usually do not qualify for tax exempt status. We assist HOAs we manage with filing 1120-H and Colorado Corporation taxes at no charge. It is a simple matter and in my opinion does not justify the cost of using a CPA. You can check with the MA dept of revenue on the form you may need for filing state taxes. With no outside income you will owe no taxes but it may be a good idea to file anyway.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Roger,

How much extra does your co charge to file the HOA income taxes? Also, as a prop mgmt co with many HOA on contract (I suppose) doesn't the company employ accountants to do the finances? As an accountant working at a CPA firm I prepared many corp tax returns; it's what accountants do.

Many HOA treasurers don't even have knowledge of bookkeeping -- much less accounting, so to even recommend they file the tax return -- that they are resp. for -- is just not good common sense, IMO. I know the form is not difficult to fill out and for an assn with limited income and no interest income it's really a snap -- it's just the principle of it that comes into play. At least that's my opinion -- and I'm sticking to it.

RogerB (Colorado)
Posts: 5,067

Posted:

Mary, I understand your position and I agree that many HOAs do not have Board members with a detailed knowledge of bookkeeping. But if they have ever filed their personal taxes it will be easy to file the HOAs taxes. Or they can chose to spend a few hundred dollars and let someone else do this simple job that takes a few minutes.

Since it is so simple and takes so little time DARCO's managing agents assist the HOAs they manage at no cost. For example this week the process was discussed with a new Treasurer by telephone for 5 minutes. He was able to complete IRS form 1120-H and Colorado Corporation Form 112 by himself. They were reviewed last night during a Board meeting and one error on the Colorado form was corrected. He will redo Colorado form 112, sign, and mail with payments. In the future he will be able to do it without help. It is my experience that a little help (or a previous year's completed form) is only needed the first time.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Roger,

As I said earlier, I do agree it's not a very complicated process especially for the small assn with limited income. However, my personal opinion is that the treasurer -- as an unpaid volunteer -- doesn't need that extra added resp. If they don't want to pay a CPA, golly they can just go to H&R Block! But, another reason for going to a CPA is that he can also do an audit, review or compilation at the same time. My former assn of only 49 homes found a CPA to do both the taxes and a compilation for only $150.

SherwinL (Massachusetts)
Posts: 2

Posted:

Thank you so much for the information!

I've contacted the DOR and they told me to use 3M.

Maybe we'll just circulate the tax forms among the units, so that no one unit is responsible and liable. That is, if the forms are indeed easy to fill out!

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