Tax Considerations for Chicago Condo Associations

Condo associations in Chicago have specific tax considerations they need to be aware of. While condo homeowners are responsible for paying their own property taxes directly to the government, there are financial and tax responsibilities the HOA must also stay on top of. Condo boards can work closely with an association management company to prepare financial documents for the HOA and should also consult with qualified tax professionals who can provide guidance on compliance and reporting responsibilities.

Key Tax Areas to Note for Chicago HOAs
  • Association finances: Reviewing and maintaining accurate financial records year-round is essential for your HOA so you can budget appropriately and be prepared for tax time. Condo associations are usually considered non-profit entities, but they are not automatically tax-exempt. If eligible for tax-exempt status, there is a formal application process that must be filed through the IRS. 
  • Assessment income: Income generated by the association, such as that via assessments and fees, is generally not subject to income tax for the association. Assessments are considered contributions to the common expenses of the HOA. 
  • Reserve funds and interest income: Interest earned on reserve funds or other investments may be subject to taxation. It’s important to monitor and report such income accurately and work with an accountant on filing.
  • Deductions and expenses: Condo associations can typically deduct certain expenses related to their operation, such as maintenance costs, management fees, insurance, and other necessary expenditures. Once again, proper documentation and accurate record-keeping are essential for claiming these deductions.
  • Tax filings: Even if your condo association is tax-exempt, you may still need to file certain tax forms with the IRS. Form 1120-H, the U.S. Income Tax Return for Homeowners Associations, is commonly used for this purpose. 

There are many financial and reporting responsibilities Illinois condo associations need to stay on top of. Conducting annual financial reviews to ensure compliance with tax regulations makes this easier, so does partnering with professionals including an association management company. They can take over the day-to-day heavy lifting of working with accountants and ensuring all proper documentation is completed. To learn more about all the ways our team at First Community Management supports HOAs in Illinois, contact us today.

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