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condominium management

Net operating loss deduction

Automatic 12-month extension to

associations and residential real

(section 172).

make election. If the homeowners

estate management associations.

Deductions under Part VIII of

association fails to make the

subchapter B (special deductions for

regulatory election to be treated as a

To qualify as a homeowners

corporations).

homeowners association, it can get

association, the following must apply.

an automatic 12-month extension to

At least 60% of the association's

If facilities are used (or personnel

make the section 528 election,

gross income for the tax year must

are employed) for both exempt and

provided corrective action is taken

consist of exempt function income

nonexempt purposes, see

within 12 months of the due date

(defined later).

Regulations section 1.528-10.

(including extension) of the return.

At least 90% of the association's

Exempt function income. Exempt

See Regulations section 301.9100-2

expenses for the tax year must

function income consists of

for more information.

consist of expenses to acquire, build,

membership dues, fees, or

manage, maintain, or care for its

Tax rate. The taxable income of a

assessments from

property, and, in the case of a

homeowners association that files its

(a) owners of condominium housing

timeshare association, for activities

tax return on Form 1120-H is taxed at

units, (b) owners of real property in

provided to, or on behalf of, members

a flat rate of 30% for condominium

the case of a residential real estate

of the timeshare association.

management associations and

management association, or (c)

No private shareholder or individual

residential real estate associations.

owners of timeshare rights to use, or

can profit from the association's net

The tax rate for timeshare

timeshare ownership interests in, real

earnings except by acquiring,

associations is 32%. These rates

property in the case of a timeshare

building, managing, or caring for

apply to both ordinary income and

association. This income must come

association property or by a rebate of

capital gains.

from the members as owners, not as

excess membership dues, fees, or

If the association is tax exempt

customers, of the association's

assessments.

under section 501(a), do not file Form

services.

The association must file Form

1120-H. See section 6033 and related

1120-H to elect under section 528 to

Assessments or fees for a common

regulations. If the association loses its

activity qualify but charges for

be treated as a homeowners

exempt status, see Regulations

association.

providing services don’t qualify.

section 1.528-8(e).

Examples. In general, exempt

Association property. Association

Definitions

property includes real and personal

function income includes

property that:

assessments made to:

Homeowners association. There

1. The association holds,

1. Pay principal, interest, and real

are three types of homeowners

estate taxes on association property.

2. The association's members

associations.

2. Maintain association property.

hold in common,

1. A condominium management

3. The association's members

3. Clear snow from public areas

association organized and operated

and remove trash.

hold privately within the association,

to acquire, build, manage, maintain,

and

and care for the property in a

Income that is not exempt function

condominium project substantially all

4. Is owned by a governmental

income includes:

of whose units are homes for

unit and is used to benefit the unit's

1. Amounts that are not includible

individuals.

residents.

in the organization's gross income

2. A residential real estate

other than under section 528 (for

Timeshare association property

management association organized

includes property related to the

example, tax-exempt interest).

and operated to acquire, build,

timeshare project that the association

2. Payments from nonmembers.

manage, maintain, and care for a

or its members have rights to use.

3. Payments from members for

subdivision, development, or similar

These rights must arise out of

special use of the organization's

area substantially all of whose lots or

recorded easements, covenants, or

facilities, apart from the use generally

buildings are homes for individuals.

other recorded instruments.

available to all members.

3. A timeshare association (other

For more information, see

4. Interest on amounts in a sinking

than a condominium management

Regulations section 1.528-3.

fund.

association) organized and operated

Taxable income. Taxable income is

to acquire, build, manage, maintain,

5. Payments for work done on

the excess, if any, of:

and care for the property that has

nonassociation property.

members who hold a timeshare right

1. Gross income for the tax year,

6. Members' payments for

to use, or a timeshare ownership

excluding exempt function income,

transportation.

interest in, real property of the

over

For more information, see

timeshare association. A timeshare

2. Allowed deductions directly

Regulations section 1.528-9.

association cannot be a condominium

connected with producing any gross

management association.

income except exempt function

income. Allowed deductions include a

See Regulations section 1.528-4

specific $100 deduction. The

for information regarding the

following are not allowed.

“substantially all” test for

-2-

Instructions for Form 1120-H

Instructions For Form 1120-H - U.s. Income Tax Return For Homeowners Associations - 2017 Page 2

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