HOAs
Audits, reviews, tax returns, and budgeting support for homeowners associations and condominium associations and the boards that run them.
Overview
Homeowners associations and condominium associations collect assessments from owners and use them to maintain common property, pay for shared services, and save for future repairs. Although they are nonprofit in purpose, most are not 501(c)(3) charities. Many file an annual federal return on Form 1120-H, which is available to qualifying associations under IRC Section 528, while others file Form 1120. Boards are usually volunteers, so they need clear financial statements and a tax approach that fits the association’s situation.
Pease Bell provides audits and reviews of HOA and condominium association financial statements, prepares federal and state tax returns, and helps boards and management companies with budgeting and reserve planning. Our audits address the areas owners and lenders tend to focus on, including assessment receivables, reserve fund balances, and disclosures about future major repairs and replacements. We also help boards evaluate each year whether Form 1120-H or Form 1120 is the better fit.
How We Help HOAs and Condo Associations
HOA Audits and Reviews
Audits and reviews of association financial statements, often required by governing documents or state law, covering assessments, operating and reserve funds, and common property accounting.
Form 1120-H and 1120
Preparation of federal and state tax returns, including an annual evaluation of whether the association qualifies for and benefits from filing Form 1120-H under IRC Section 528 or Form 1120.
Reserve Disclosures
Support for the required supplementary information on future major repairs and replacements, coordinated with your reserve study so the financial statements reflect the board’s funding plan.
Budget Preparation
Help building operating and reserve budgets that support assessment decisions, with clear assumptions about costs and reserve contributions that boards can explain to owners at annual meetings.
Management Company Coordination
Working with your community management company on year-end closing, bank reconciliations, and records requests so audits and tax returns move forward on schedule without unnecessary back-and-forth.
Board Financial Reporting
Practical guidance for volunteer board members on reading financial statements, monitoring delinquencies, and understanding the difference between operating and reserve funds when making spending decisions.
Challenges We Help HOAs Address
- ✓Choosing between Form 1120-H and Form 1120 each year
- ✓Underfunded reserves that may lead to special assessments
- ✓Delinquent assessments that strain operating cash
- ✓Volunteer boards that change and need clear financial information
- ✓Governing documents or state laws that require periodic audits or reviews
Frequently Asked Questions
Is an HOA a 501(c)(3)?
Generally no. Most homeowners and condominium associations are not 501(c)(3) charities because they primarily benefit their members rather than the public. Instead, many qualify to file Form 1120-H under IRC Section 528, which can exclude member assessments from taxable income. Others file Form 1120. Some associations have other exemptions, so the facts matter.
Should my HOA file Form 1120-H or Form 1120?
It depends on your association’s income, expenses, and eligibility. Form 1120-H is simpler and generally excludes exempt function income such as member assessments, but taxes the remaining income at a flat rate. Form 1120 may produce a lower tax in some situations. Pease Bell can compare both approaches each year for your association.
Does an HOA need an audit?
Requirements vary by state, association size, and governing documents. Some associations must have an annual audit or review, and lenders evaluating condominium projects may ask for audited statements. Even when not required, an audit or review gives owners independent assurance. We can help your board determine what level of service applies.
What is a reserve study, and how does it affect HOA financial statements?
A reserve study estimates the remaining useful life and replacement cost of major common components, such as roofs, paving, and elevators, and recommends a funding plan. Accounting standards call for HOA financial statements to include supplementary information about future major repairs and replacements, which is often drawn from the reserve study. We help connect the two.
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