Does an HOA have to file a tax return or pay taxes?
Reviewed by the OurHOA team · Updated June 2026
Whether a homeowners association files a federal tax return and owes income tax, the difference between Form 1120-H and Form 1120, and why member dues usually aren't taxed.
The short answer
Yes - nearly every HOA has to file a federal income tax return each year, even though it's organized as a nonprofit and usually owes little or no tax. "Nonprofit" under state corporate law does not mean "tax-exempt" under federal tax law: most associations are treated as taxable corporations by the IRS. The reassuring part is that the money making up the bulk of an HOA's budget - member dues and assessments spent on the community - generally isn't taxed at all.
Nonprofit is not the same as tax-exempt
Associations are typically incorporated as nonprofit or mutual-benefit corporations under state law, which is about liability and governance, not taxes. Federal tax-exempt status under Internal Revenue Code section 501(c) is a separate thing that an organization has to apply for and be granted, and most HOAs don't have it. A small number qualify as 501(c)(4) social-welfare or 501(c)(7) organizations, but that's uncommon and requires IRS recognition. So for the typical association the default is straightforward: it is a taxable corporation that must file a return every year.
Form 1120-H - the HOA-specific return
Under Internal Revenue Code section 528, a qualifying association can elect to file Form 1120-H. Its main benefit is that "exempt function income" - essentially the dues, fees, and assessments members pay to maintain and operate association property - is excluded from taxable income. Only "non-exempt" income, such as interest earned on reserves or fees from renting a clubhouse to nonmembers, is taxed, at a flat 30% rate (32% for timeshare associations). To use Form 1120-H, the association has to meet annual tests - broadly, at least 60% of its income must be exempt-function income and at least 90% of its spending must go to association property. The form is simpler than a regular corporate return and shields member dues even in a year the HOA runs a surplus.
Form 1120 - the regular corporate return
An association can instead file a standard Form 1120 at the 21% corporate income-tax rate. That can mean a lower rate on net income, but it's more complex and can expose the association to tax on excess member assessments unless it makes the election under IRS Revenue Ruling 70-604 - a member-approved decision to either refund a year's excess assessments to owners or apply them to the next year's budget so they aren't taxed as income. Many associations have a CPA compare both forms each year, since the better choice depends on how much non-exempt income the HOA had. The Form 1120-H election under section 528 is generally made annually and is hard to undo once that year's return is filed.
State returns and the "we owe nothing" trap
Most states with an income tax also require an annual state return from associations, and the rules vary. The key point either way is that filing is required even when no tax is due. Skipping the return because "we're a nonprofit" or "we didn't make a profit" can trigger penalties and compliance problems that eventually surface in the association's financial review. Knowing which return your HOA files is part of understanding its finances - our guide on how to read HOA financials and our guide on whether an HOA has to provide a year-end financial report cover what owners should expect to see.
What to do - and how OurHOA helps
Owners can generally ask to see the association's tax filings as part of its financial records, and a board that can't say which return it files is worth a polite follow-up. Boards should have a CPA who knows community associations prepare or review the return, compare Form 1120-H against Form 1120 each year, and adopt the Revenue Ruling 70-604 election at a members' meeting if they file the regular 1120. None of this changes whether your own dues are deductible on your personal return - that's a separate question covered in our guide on whether HOA fees are tax-deductible. OurHOA helps small self-managed communities keep the clean income, expense, and reserve records a tax preparer needs at year end. For your association's specific situation and your state's filing rules, consult a CPA.
OurHOA is the friendly, affordable way self-managed communities keep dues, records, and reminders in one place. See how it works.
These guides are general education for HOA boards and residents, not legal, tax, or financial advice. Rules vary by state and by your community's governing documents - check with a professional for your situation.