1120h for 'hybrid' condo ***. that owns rentals

[BettyC14]

I have a question about a condo association that owns two rental properties. I have done an 1120h for the rental income. For direct I took the property taxes, interest, direct repairs and depreciation. I'm looking for input on what is allowable-----help!

Betty C-14

[BOB W]

I always use " ordinary and necessary" as a guide, but you need to look at the checkbook for documented expenses. Looking for deduction out of thin air is always a problem.

[Bees Knees]

You might not be doing it correct.

From TTB, page SB2-16:

Exempt-function income. Consists of dues, fees, or assessments
paid by property owner-members for maintenance and
improvement of the property. Income that is not considered exempt-
function income includes interest, dividends, coin laundry
income, vending machine income, rental of units owned by the
association, rental of garage parking and storage areas, party
room rentals, etc. If Form 1120-H is filed, net income attributable
to exempt-function income is tax-free. All other income is taxed
at a flat rate of 30% (32% for timeshare associations).

Note that when the association rents its own units, that is not exempt function income, meaning it gets taxed on the 1120-H.

If that is the majority of your income, you might pay less tax filing the 1120 instead of 1120-H. Then all your expenses would be deductible.