Can you file an 1120H late.

November 11, 2009

Yes and No. 

An extension can be filed late but the IRS will ignore it and say you are filing your Form 1120H late.   The Form 1120H is due  three and one-half months after the calendar or fiscal years ends.  If you file a timely extension then you will have time to file your Form 1120 or Form 1120 H.

Remember an extension is only an extension of filing your tax return and not in paying of your taxes.  Penalties and interest will still accrue during the time of the extension.  However, the filing of an extension does keep the penalties at the lower rate.  Your basic penalties for filing by the due date would be 25% stretched out over a two year period of time.  Your filing of the same tax return without an extension but by the same extension due date would be a mere 75% penalties stretched out over a two year period of time.  All penalties are assessed on a monthly basis as well.  You should thus then observe the 15th as the end of the previous month and the 16th will give you another monthly assessment. 

But if your question is rather the election of filing a Form 1120H you will have one year from the due date of the return with elections included.  So if your due date without extension is March 15, 2010 then count forward one year and you will have March 15, 2011 as your last date to make an election to file a Form 1120 H.  Past this date you will need to file Form 1120 and you will not be allowed to elect to File Form 1120H. 

Please be advised that in some instances the Form 1120 can be more expensive.  This is usually the case.  With Form 1120 you will be required to depreciate your new assets rather than to immediately expense them.  You do not have an option to expense tools when associated with residential usage.  “Refrigerators and stoves and furnaces in a residential setting do not qualify for business usage property and thus are not eligible for the Section 179 exclusion.  This is not the same as the 30% or 50% exclusion which from prior tax returns you were required to take or to elect out of in prior tax years if the equipment was a new asset and but not for used assets.  

So to keep your total options open do file an extension by the three and one-half month due date.  Do calculate your Form 1120 and Form 1120 H hopefully prior to the extension due date if extended or the due date if an extension is not filed.  And filing the Form 1120H does give you the right to file (whichever tax return was lower or Form 1120 if lower) and to get your lowest tax liability if filed within the one year or one year plus extension if filed timeframe. 

File timely always though for your truest lowest cost.   As a fiduciary you will not want to get yourself in the position of having to reimburse your members or the board for penalties and interest to the IRS for not keeping up on your duties in a timely fashion.

Good Luck also.  File early. 

Source:

http://www.irs.gov/pub/irs-pdf/f1120.pdf

http://www.irs.gov/pub/irs-pdf/i1120.pdf

http://www.irs.gov/pub/irs-pdf/f1120h.pdf

http://www.irs.gov/pub/irs-pdf/i1120h.pdf

 


Homeowners Associations: Cautions of filing 1120-H or 1120

September 29, 2009
Homeowners Associations: Cautions of filing 1120-H or 1120
 

A Homeowners Association has the right to either file a Form 1120 or Form 1120-H provided:

This really is the question. The providing part of the question.

Title 26, chapter 1, Section 301.9100-2(a)(2)(v)

The election to be treated as a homeowners association under section 528;

But under

Title 26, chapter1, section 301.9100-2(a)

Automatic 12-month extention–(1) In general. An automatic extension of 12 months from the due date for making a regulatory election is granted to make elections described in paragraph (a)(2) of this section provided the taxpayer takes corrective action as defined in paragraph (c) of this section within that 12-month extension period. For purposes of this paragraph (a), the due date for making a regulatory election is the extended due date of the return if the due date of the return including extensions and the taxpayer has obtained an extension of time to file the return. This extension is available regarless of whether the taxpayer timely filed its return for the year the election should have been made.

If you are late in filing your return past the natural 3 1/2 months timeframe or an additional 6 months for an extension plus 12 months for the automatic extension you will be required to file a Form 1120 and may not elect to file a Form 1120-H. The task of being a procrastinator in this case can be extremely costly and expensive. Not only are penalties and interest adding from the usually higher Form 1120 calculations but in some cases the difference of the 1120-H and the 1120 can be substantial.

When filing Form 1120 the usage of normal depreciation schedules and calculations must be used. If an asset needs to be depreciated and a section 179 election is not permitted due to the usage of the asset then the differences of the taxable amount can be enormous. If you have an asset such as a Roof which costs $75,000 and in order to get enough in the way of cash for paying off the new asset of $50,000 then on your 1120 you would have an income of $50,000 and a depreciation for the year if put into service on February 28th of $2386.36. On the Form 1120-H you would have income of $75,000 and expenses of $50,000. Additional expenses for qualification would usually mean for direct income is not taxed. Only your indirect expenses of interest income from dues and fees for the year would be taxable. This assumes you are not renting the grounds out to outsiders and looking at other extra income which may be separately taxed. And of course, it would be difficult to have additional expenses to make up the $47,613.64 difference for Form 1120.

But is there a solution to the above situation besides just having to pay taxes on the “excessive” income for the current year if you missed the 528 election time allowance.

Yes.

My cautionary notes would be to have interest income from bank accounts in a tax-exempt money market instead of just in a regular bank account. Your financial plan or board of directors and members would have to direct you to this path. Some tax may be healthy for your need for a return on investment or for the basic concept of reaching your building maintenance fund program. This would be a board and members decision. The treasurer should not make this as an independent decision.

The second item to look at when establishing a policy of improving the life expectancy of your building (new roof, double and triple pane windows, etc.) is to collect the income over a period of years. Since you can have an income and expense which do not match (positive income) up to a certain level adjust your building fund to exceed your expenses. Look at the required income and expense ratios of 90/60%. (See Form 1120-H instruction booklet on page 2 for examples and definitions.) Do not go under these numbers however. You will need to satisfy these ratios or you will not be qualified to file as an 1120-H Homeowners Aassociation.

Do not confuse an asset which increases the life expectancy of your building and one which you will need to expense for the year. If it is maintenance or a repair and not extensive and does not increase the life expectancy of your building then it could be a current expense and not a depreciable asset. For most purposes also a section 179 deduction on residential property does not apply. But if the assets is a coffee pot for example which would be personal property and not real property then a section 179 may apply. But this is another topic for another day.

So bottom lining for tax purposes on Form 1120-H. If you can elect then you usually will be better off making an election. If you cannot elect or perceive that you may not be able to elect Form 1120-H then try to reduce your exposure to excess taxes on Form 1120 by creating an improvement fund. But under all circumstances make sure the board and the members know well ahead of time what your options are and what actions you are taking to protect the members against possible oversites and mistakes. If the members only want to be charged at the last minute maybe advise of differing tax concequences or set up a loan program so the members can draw down on the debt. This approach, however, can be extremely negative if payments are not made.

If it is too risky, avoid it. If it is too cumbersome then try to mitigate the obstacle. But if is the only avenue of revenue at least try to reduce the risk exposure to taxes. But above all be direct with your board and members in explaining their consequences if there is any chance of something going wrong. i.e. get it in the minutes.

END

 

 


HB 1495 – Real Estate Tax exemption for Low-Income Earners

February 13, 2009
HB 1495 – Real Estate Tax exemption for Low-Income Earners
http://apps.leg.wa.gov/documents/billdocs/2009-10/Pdf/Bills/House%20Bills/1495.pdf
This bill seems to be quite the benevolent bill. but further reading indicates the limitations which are inherant in the bill.

The first mistake in the bill requires a thirty-year fixed-rate mortgage. This might be good at first glance but what about a twenty year mortgage or a fifteen year mortgage. Or even better what about a forty year mortgage. The bill is not as elastic as if should be for a motivation. If an individual only expects to stay for a short period of time what about a seven year balloon. The legislature is requiring a thirty year mortgage as a dictation. What if someone buys the house as a gift for the individual. This is not allowed. So someone would have to get a thirty year mortgage and turn around and get the gift. The bill assumes the individual is able to get a thirty year mortgage.

The bill could require the excise tax be paid by the seller and then entered as an amount on the HUD closing papers to be paid back or as a second mortgage subject to payment after a ten year period of time. This could act as part of the down payment for the first mortgage. Getting the mortage insurance premium to be eliminated here would be a stronger goal. The sooner to the 20% ownership the sooner the mortgage insurance premium would go away. The smaller the amount of excess payments for low income homeowners is the motivation which should be in the bill. After the mortgage insurance premium is paid off then the excess amount could be used to pay back the state the amount of the excise tax.

The wording “combined disposable Income” is an ackward word here and other meanings are attributable to “disposable income” and thus making the use of “combined disposable income” inappropriate for what is really being meant to say here. A better choice of wording might be “cumulative household adjusted gross income”. The term disposable income means the amount of income after all expenses have been paid then the amount left over can be used for investments or excess trips or vacations. This in its raw meaning would calculate for low-income individuals to be zero. In this case someone who has an income of $70,000 would qualify as low-income. In another case someone who had $150,000 in income could qualify. Both could be living month to month.

A limitation of $1,000,000 for the amount of the excise tax not paid is low. After the funds exceed one million dollars all of the counties are to be notified that the program has stopped for the fiscal year. This is a start and stop provision. My version of a repayment would allow the program to continue because repayment to the program from prior low-income purchasers would then repay or refinance or sell their homes. Oh. No provision ior restriction of refinancing is included. So after securing a thirty year mortgage I could refinance with a 125% mortgage. If the market does not improve then I could be sitting pretty on the mortgage and states money. This bill is really not thinking like it needs to be. Safeguards were not in place on the first federal bailout and no safeguards are being placed in this bill. Caution is the rule of the day.

A qualifying buying being or not having a prior owned home in the last three years is pretty much a standard timeframe for non-ownership. This qualifier is correct. Bravo. At least something is important. But is this calendar year or 1095 or 1096 day timeframe. Please advise.

The problem with the 80% of median family income as related to family size and reported by theUnited States department of housing and urban development is key for the Seattle/King County market. The statistics for King County are taken from the low income area of Kent and Auburn. Housing and standard of living are lower in these areas. This legislation will not affect anyone living in Seattle due to the cost of housing. Low-income means low-income and Seattle housing prices do not come close to a low-income pocketbook. So the affective legislation here is for urban development and rural development. Too bad the jobs would not follow out in those areas.

Completing a financial education class consistent with standards adopted by the Washington State housing finance commission. This should be a requirement of all borrowers in the current financial market. Drop a lesson about credit card debt in also.

A “Qualifying seller” is a person “primarily engaged in the business of building of rehabilitating residentail housing units”. This sounds like a specialized field. Pre-approval seems to be the order of the day. Who buys the property. Are the properties bought on spec and then rehabilitated or is a set amount of profit included on this “qualifying seller” builders. My first impression was that the low-income buyer could buy a home from anyone. This qualifier of being a “qualified seller” seems to be too restrictive and almost punitive. The qualifying seller would know at what price a house can be sold for prior to the purchase of a rehab and cut corners appropriately. Sub-standard workmanship would be the order of the day. Non-professional craftsmen would be in this industry. Or is this a new cottage industry which is being created. With a limited potential selling price the rehab craftsmanship would be limited. Will the house have to standard insulation or above standard insulation so the heatingcosts could be reduced on a month-to-month operating basis.

If another provision could be added to this bill that would be great also. Currently some types of 1031 exchanges require a third party first to buy the house and then sell is to the buyer. So in affect an excise tax has been paid twice for the single purchasing of a house. This is a common defensive procedure and currently the 1031 exchange deal is doubing up on the costs. If this is not corrected then I could see a 1031 exchange deal going to someone who qualifies under this bill and being able to pocket some extra change but of course only once every three years. But forming a “qualifying seller” may skirt this issue as well. Will have to think about this part of the law and the functionality of the qualifying seller as related to a 1031 exchange deal. If this could be the affect then theoretically no low-income individual would ever be able to buy a house under this bills provisions.

END

 

 

 

 


HB 1141 – Sales and use tax rebate for affordable housing.

February 9, 2009
HB 1141 – Sales and use tax rebate for affordable housing.

It is unfortunate that HB 1582 which deals with a property tax exemption for manufactured/mobile home communities and not have a real estate tax aka property tax on the residence for ten years does not deal with the above for manufactured homes. The only form of affordable housing seems to be manufactured homes yet the federal legislation I do not believe addresses this aspect. A resident usually owns the manufactured/mobile home but not the land which it sits on. For affordable housing the tenant has no risk in anything. Not land. Not the building. Not the unit. And especially not the real estate taxes nor the sales tax or use tax as this bill would tend to believe.

At what point might the sales or use tax be required to be paid back. For low income housing projects if the property is converted prior to fifteen years to non-low income housing the tax credits have to be recaptured. No provisor is permitted or addressed in this legislation. For each non-completed year the use tax or sales tax should be recaptured or reimbursed. I would say the use or sales tax should be assessed at the current fair market value if the conversion occurs prior to the fifteen year period of time.

A deal should always envelope a counter con-completion deal. Always.