Homeowners Association Taxation
Association taxation is one of the most complex areas of tax law, but we make it easy for you. As part of every tax engagement, we provide you with a comparison of taxes under either the Form 1120 filing method, or the Form 1120-H filing method. See our list of published books and articles published for further information on taxation.
Gary Porter is the primary author of PPC's Guide to Homeowners Associations and Other Common Interest Realty Associations and Homeowners Association Tax Library, has written dozens of articles on association taxation, and is generally recognized as one of the top tax professionals in the country on association taxation. He has provided tax consulting services to hundreds of CPA firms, and spoken at many industry conferences on the topic of association taxation. He is also the author of CAI's national public policy on association taxation, and the update author for the California CEB (Continuing Education of the Bar) section on association taxation.
The subject of association taxation is so complex and so specialized that we have established separate websites that focus specifically on these matters. See our tax sites at:
We are well aware of the risks inherent in homeowner association taxation. Our primary goal is to limit tax risk for our association clients. As part of this process we attempt to identify tax planning opportunities to minimize your current and future tax liabilities.
Condominium and Planned Development Associations
An estimated 90% to 95% of the more than 330,000 associations fall into this category, and the major issue is the decision to file Form 1120 or Form 1120-H. We know how to make this easy for you. While other CPAs discuss only the difference in tax rates, we discuss tax rates in conjunction with tax risk, which is very high on Form 1120, and nonexistent on Form 1120-H.
As indicated above, what seems like a simple issue is actually very complex. Consider that Gary Porter wrote the nearly 100 page tax chapter of PPC's Guide to Homeowners Associations and Other Common Interest Realty Associations and the more than 900 page Homeowners Association Tax Library. These are detailed, technical writings aimed at CPAs who are already considered experts in taxation. No one can match our documented expertise in taxation.
Gary Porter has been working in the timeshare industry since 1986. He has provided audit, tax and reserve study services to the industry continuously since that time. Timeshare associations were granted the ability to file Form 1120-H with the modification of Internal Revenue Code Section 528 in the 1990's. Given the IRS position of timeshare associations set forth in their Audit Techniques Guide for Timeshare Associations, we have adopted a conservative position of filing Form 1120-H for our timeshare clients whenever possible to reduce tax risk.
Exempt Association Taxation
Gary Porter is also one of the pioneers in seeking complete exemption from taxation for associations. He has successfully prepared nearly 100 exemption applications under IRC Section 501(c)(4), with a 100% success rate. These have even included more than 20 gated communities that many inside the IRS contend could never qualify for exemption. The cumulative tax saving to these clients alone exceeds $22,000,000. Contact us to see if your association qualifies. Visit our tax exempt website at www.501c4taxexempt.com.
Cooperative Association Taxation
Cooperative association taxation evolved rapidly in the 1990's with a series of major tax court cases. Gary Porter then expanded these concepts to new areas, generating more than $1,000,000 in tax refunds for the Firm's cooperative clients. Mr. Porter regularly consults with other CPA firms to assist them in understanding this unique area of taxation.
The cooperative form of legal ownership is completely different than all other types of common interest developments and makes them unique in the tax area. In cooperative associations, the association typically owns all real property, with owners/members establishing their ownership interest via issuance of stock or membership shares, and possibly with a lease related to their unit.
Tax issues related to cooperative associations are also unique. Cooperatives are taxed under Subchapter T of the Internal Revenue Code (IRC), Sections 1381 - 1388. In addition, for those cooperatives that meet the qualification, they may be recognized as a "Cooperative Housing Corporation" under IRC Section 216, which allows the pass-through of interest and property tax deductions from the cooperative to the owners/members.
Condo Hotel Associations
Condo Hotel Associations present significant tax challenges. Their ownership structure is that of a full ownership condominium association, but their operations are those of a hotel. This presents unique challenges in the management of the association. The management staff must not only be conversant with laws regulating full ownership associations, but must be familiar with hotel-type operations. It also presents challenges from a tax perspective, as the nature of operations means that the association will generally not qualify as residential in nature, and will not qualify as a timeshare association, so generally can't file Form 1120-H. This leaves condo hotel associations in the worst possible tax position, being forced to file Form 1120, thus placing them in the highest risk tax position.