September 20, 2026

SusanIsaacs

The 30% Condo Tax Congress Forgot to Update

Condo Association Taxes, condo financing, Condo Reserve Funds, Condo Reserves, Fannie Mae, Federal Tax Policy, Form 1120-H, Freddie Mac, HOA Reserve Funds, HOA Reserves, HOA Taxes, outdated condo tax, Section 528

Condo associations and HOAs are being told to save more money. But a 1980 tax is making that more difficult than it should be in 2026.

The message is amplifying just about everywhere. Aging buildings need larger reserves. Insurance costs and deductibles are rising. Deferred maintenance has become a lending issue. Fannie Mae and Freddie Mac are tightening condominium project standards, including a new 15% standard reserve contribution requirement taking effect in 2027. Yet a tax rate set in 1980 is still adding to the debit column in 2026.

The 30% Tax on HOA and Condo Reserve Earnings

Homeowners associations and condominium associations are supposed to save for the future.

Roads deteriorate. Roofs wear out. Elevators, retaining walls, swimming pools, façades, mechanical systems and other common property eventually need major repairs or replacement. Rather than hand the entire bill to whichever homeowners happen to be around when something fails, well-managed associations collect money over time and build reserves. Then they try to make that money work while they’re waiting to spend it. That’s where an obscure provision of the federal tax code enters the picture.

Many qualifying HOAs and condominium associations elect to file their federal taxes under Section 528 of the Internal Revenue Code using Form 1120-H. The arrangement provides an important benefit: qualifying dues and assessments collected from homeowners are generally excluded from the association’s gross income.

Interest earned on reserve funds is another matter. The IRS specifically treats interest earned on amounts held in a sinking fund as nonexempt income. After applicable deductions, taxable nonexempt income under Section 528 is taxed at a flat 30%.

That rate was established in 1980. It hasn’t changed since.

The consequences become more interesting as associations are pushed to save more money, because the better funded an association becomes, the larger the reserve balance capable of generating taxable interest becomes.

Saving more doesn’t leave an association worse off. More reserves are better than fewer reserves. But federal policy is increasingly encouraging prudent reserve accumulation in one context while federal tax policy takes a relatively large cut of the taxable earnings those accumulated reserves can produce in another.

For condominium associations, that contradiction is about to become considerably more relevant.

What Exactly Is Being Taxed?

First, this isn’t a 30% tax on HOA or condo fees. It’s not a 30% tax on the reserve balance either.

Think of the association’s money as falling into two broad buckets under Section 528:

Qualifying money homeowners contribute through dues, fees and assessments to operate and maintain their community. The tax code calls this “exempt function income.” For an association qualifying and electing treatment under Section 528, that income is generally excluded from gross income;
Income the association earns from other sources. That can include rental income, certain income received from nonmembers and investment income. And that includes taxable interest generated by reserve funds.

Suppose homeowners have accumulated $1 million in reserves for future capital projects and the association earns 4% on that money. That’s $40,000 in annual interest.

Assume there aren’t any applicable deductions besides the $100 specific deduction allowed under Section 528. The association would have $39,900 in taxable income. At 30%, its federal tax would be $11,970. Instead of retaining the full $40,000 generated by money homeowners put aside for future repairs, the association retains about $28,030 after federal tax. The principal is still there, but some of the money it earned isn’t.

But Wait. The D.C. Council Wants a Slice, Too

The federal government isn’t the only government taxing the earnings on money homeowners have saved for future repairs.

In the District, condominium associations and HOAs can also owe the 8.25% corporate franchise tax on taxable income. Maryland taxes applicable association income at its 8.25% corporate rate, while Virginia taxes Virginia corporate taxable income at 6%. These aren’t special tax rates created for reserve funds. They’re separate state and District taxes imposed through each jurisdiction’s corporate tax system.

Jurisdiction	Rate	What the rate is based on
D.C.	8.25%	D.C. taxable income under the corporate franchise tax. The D-20 calculates total D.C. taxable income and applies 8.25%. There are also minimum-tax rules.
Maryland	8.25%	Maryland taxable income. Maryland goes further and specifically defines an HOA as a “special exempt entity”; its “applicable tax base” expressly includes the portion of income taxed under IRC §528(b). Maryland’s corporate rate is 8.25%.
Virginia	6%	Virginia taxable income, beginning with federal taxable income and then applying Virginia modifications. Virginia has specifically ruled that a §528 HOA properly starts with its federal taxable income and is subject to Virginia income tax.

Go back to our $1 million reserve example. The association earned $40,000 and, after the $100 deduction in our simplified federal calculation, had $39,900 in taxable income. The federal government took $11,970.

Using that same $39,900 as an illustrative local taxable base, D.C. would take another $3,291.75. The combined federal and District tax would be $15,261.75 out of the $40,000 the homeowners’ reserve fund earned. Maryland produces the same illustrative total at its 8.25% rate. In Virginia, the additional 6% would be $2,394, bringing the illustrative combined tax to $14,364.

Actual state and District taxable income can differ from the federal amount because each jurisdiction has its own adjustments. But there’s nothing hypothetical about the additional layer of taxation.

The homeowners still have to replace the roof. They still have to repair the façade, repave the road and replace the elevator. Neither the federal government nor the state or District assumes a penny of those future obligations because it collected tax on the earnings intended to help pay for them.

And now our 2.8% after-federal-tax return in the next example starts looking generous.

Other States Made Different Choices

DC and Maryland aren’t just adding another tax to the federal bill. At 8.25%, they impose the highest additional rate among the jurisdictions examined here. Other states have made very different choices about taxing associations, ranging from lower corporate rates to HOA-specific exemptions to zero corporate income tax.

Jurisdiction	2026 treatment relevant to this comparison
Florida	No Florida corporate income-tax return required for an association filing federal Form 1120-H
Texas	Qualifying residential HOAs can obtain a franchise-tax exemption
South Dakota	No corporate income tax
Wyoming	No corporate income tax
Nevada	No conventional corporate income tax; Commerce Tax filing begins above $4 million in Nevada gross revenue
North Carolina	2% corporate income-tax rate in 2026; 1% in 2028; 0% after 2029 under current law
Utah	4.5% on taxable income carried from federal Form 1120-H
Virginia	6%
D.C.	8.25%
Maryland	8.25%

Selected jurisdictions use different tax bases and exemption structures, so this is a comparison of relevant state or District treatment, not a claim that every rate applies to an identical tax base.

The Tax Doesn’t Just Affect This Year’s Interest

Reserve funds exist precisely because major community expenses often occur years or decades in the future. That makes compounding important.

Consider $10,000 set aside today and earning 4% annually for 20 years. Without taxes reducing the annual return, $10,000 compounded at 4% grows to approximately $21,911. Now simplify the Section 528 tax effect by assuming the entire annual return is taxable at 30%. A 4% return becomes approximately 2.8% after federal tax. After 20 years, the same $10,000 grows to approximately $17,366. The difference is about $4,545.

The federal government hasn’t taken $4,545 directly from the original $10,000. The effect accumulates over time. Each year’s tax reduces the amount left in the account, which reduces the amount available to generate earnings in subsequent years.

Scale that up to an association. Start with $2 million in reserves and make the same deliberately simplified assumptions: a constant 4% return, a 30% tax on the earnings, no additional contributions or withdrawals, and no other deductions. At 4%, $2 million grows to approximately $4.38 million after 20 years. At an approximate 2.8% after-tax return, it grows to about $3.47 million. The difference approaches $910,000. What could an association improve for nearly a million dollars? For a condominium association, how much more secure would that association be with an additional $900,000 as Fannie Mae and Freddie Mac push applicable condo projects toward stronger reserve funding?

Real association finances don’t behave that neatly. Reserve funds receive new contributions and pay expenses. Interest rates change. Associations may have deductible expenses associated with generating taxable income. Some investments, such as municipal bonds, can generate federally tax-exempt income. Major projects occur throughout the period rather than conveniently waiting until Year 20. The example isn’t intended to forecast an association’s actual tax bill. But it demonstrates the mechanism.

The tax doesn’t merely remove part of today’s interest. It also removes the future earnings that money could have generated.

The Better Funded the Association, the More There Is to Earn Interest

This is where the issue becomes counterintuitive. Nobody should conclude that an HOA or condominium association is financially better off keeping inadequate reserves so it can avoid paying tax on the earnings. That would be absurd. But the better funded the association becomes, the larger the pool of homeowner money available to produce taxable investment income.

A community with $100,000 in reserves has relatively little money generating interest. A community with $1 million has considerably more. An association with $5 million or $10 million accumulated for roofs, roads, façades, elevators, structural work and other long-term obligations has a substantial amount of homeowner money that needs to be safely managed until it’s needed. Prudent financial management therefore creates the very investment income Section 528 taxes.

The association saves because future owners shouldn’t receive an enormous bill when an asset reaches the end of its useful life. It invests those savings conservatively because leaving millions of dollars idle for years would allow inflation to erode their purchasing power. Then a portion of the earnings intended to help offset that erosion leaves the reserve fund through federal income tax.

The capital obligation doesn’t leave with it. The road still deteriorates. The roof still ages. The elevator still reaches the end of its useful life.

If investment earnings don’t supply as much of the future cost, homeowners ultimately have to supply more.

Why Would an Association Choose a 30% Tax Rate?

At first glance, there’s an obvious question:

The regular federal corporate income-tax rate is currently 21%. Why would an HOA voluntarily elect a tax regime carrying a 30% rate?

Because comparing 21% and 30% doesn’t tell the whole story. A major Section 528 advantage is the treatment of qualifying homeowner assessments as exempt function income. The dues and assessments owners pay generally aren’t taxed. The association pays tax on money it earns from other sources, including interest on its reserves.

The alternative is the ordinary corporate tax system using Form 1120. Associations can choose it. In fact, the IRS suggests that associations calculate their tax under both systems and file whichever produces the lower tax.

But choosing between the two forms isn’t as simple as choosing the lower tax rate. Form 1120 and Form 1120-H treat an association’s income and expenses differently, so associations have to calculate which one works better for them.

But why is the 30% rate under 1120-H still the same rate Congress set in 1980?

Congress Was Actually Cutting the Tax

Congress created Section 528 in 1976. The underlying principle was that homeowners shouldn’t suddenly incur a federal income-tax problem merely because they pooled their money through an association to maintain commonly owned residential property. The treatment of income generated outside those owner assessments, however, was different.

At the time, an association’s taxable nonexempt income could be subject to the highest corporate tax rate. The rate then was 46% and Congress decided that was too high. But Congress didn’t simply give associations access to the ordinary corporate tax brackets of the time, either. At the time, corporations had graduated rates, with the first $25,000 of taxable income potentially taxed at only 17%. And Congress thought that could be too low.

The Senate Finance Committee thought members of homeowners associations were likely to be in higher tax brackets.

There was also concern that multiple related associations could potentially be used to take advantage of lower graduated corporate brackets. Attributing the income to individual homeowners and taxing each person according to his or her own rate would have created an administrative headache.

Congress needed a shortcut. It chose 30%.

The Senate Finance Committee’s published explanation doesn’t show an income survey, demographic analysis or calculation establishing that HOA and condo owners actually faced a 30% average marginal rate. Instead, the report reasoned that association members were “likely to be in higher tax brackets,” rejected passing the income through to individual homeowners as too complicated, and concluded that a flat 30% rate “may reasonably approximate the average marginal income tax rate of the members of these associations.”

It wasn’t based on what tax rate would allow reserve funds to keep pace with future capital costs. It doesn’t analyze long-term reserve funding, construction inflation or the investment limitations facing community associations.

In 1980.

The 30% provision didn’t originate with the Senate Finance Committee, it came over from the House. H.R. 7956, the Miscellaneous Revenue Act of 1980, already contained the provision establishing the 30% rate when the House passed it. The Senate Finance Committee report explicitly describes “tax rates applicable to nonexempt income of homeowners associations” as one of the provisions contained in the House bill. The Senate Finance Committee retained it.

The immediate legislative origin: House Ways and Means

H.R. 7956 was sponsored by Rep. Dan Rostenkowski of Illinois, then a senior Democrat on the House Ways and Means Committee. The House passed the bill on September 9, 1980; its accompanying report was House Report 96-1278.

The Justice Department later cited that House report along with the subsequent Senate report for the rationale behind 30%, describing §528 this way:

“…a flat 30% rate was chosen in part because HOA members were thought likely to occupy higher tax brackets.” (H.R. Rep. No. 96-1278, p. 27)

So the language apparently existed in the House Ways and Means legislative history before the Senate acted, if you’re looking to place blame.

What Happens If We Check Congress’s Math?

Congress didn’t show its work. The Senate Finance Committee said association members were “likely to be in higher tax brackets,” but its report didn’t provide income data for those homeowners or a calculation showing how their marginal tax rates averaged out to 30%.

Forty-six years later, we can do something the committee report didn’t: check.

Beginning in 2024, the U.S. Census Bureau began collecting required condominium and HOA fees together in the American Community Survey. That makes it possible to identify owner households actually paying those fees and examine their incomes. So we pulled the Census microdata for the Washington metropolitan area and reran Congress’s basic exercise using actual association-household income data and the federal tax brackets in effect for the same year.

What the Census Data Show

Our sample contained 7,643 Census household records, representing approximately 715,449 association-owner households after applying Census weights. These aren’t exactly struggling households. Their median household income was about $164,800. The 25th percentile was about $97,100, the 75th percentile was $256,000, and the 90th percentile was about $360,400.

But household income wasn’t the question Congress said it was trying to answer. Congress was attempting to approximate the marginal income-tax rates those homeowners would otherwise pay.

Using the 2024 federal tax brackets and standard deductions, and Census household composition to approximate filing status, we estimated the marginal federal income-tax rate for each household and weighted the results using Census household weights.

The result was 21.8%.

About 31% of the association households fell into our estimated 22% marginal bracket and another 34% into the 24% bracket. Together, those two brackets accounted for roughly 65% of the population. Only about 13% landed in the 32%, 35% or 37% brackets.

Congress chose 30% to approximate the average marginal rate of association members. Using actual data from association households in one of the country’s more affluent metropolitan areas, we couldn’t reproduce it.

Estimated marginal federal rate	Share of association households
10%	7.0%
12%	15.0%
22%	31.1%
24%	34.2%
32%	5.5%
35%	6.0%
37%	1.2%

2024 ACS PUMS, Washington metropolitan area association-owner households. Census-weighted estimated average marginal federal income-tax rate: 21.8%. Section 528 statutory rate: 30%.

Washington Is a Tough Test

There is an important limitation to this analysis: the 30% Section 528 rate is national, while our 21.8% estimate is based on association-owner households in the Washington metropolitan area. But that also makes Washington an unusually demanding place to test Congress’s assumption. This is a high-income metropolitan area, and the association households in our Census sample had a median household income of about $164,800. If an affluent association-owner population still produces an estimated average marginal rate of only 21.8%, substantially below 30%, a national association-owner population could produce an even lower estimate.

We haven’t tested that national hypothesis… yet. But the Washington results give Congress’s forty-six-year-old assumption a pretty strenuous stress test.

Trying to Make 30% Appear

We also tried assumptions designed to push the estimated rate higher. Treat every household as a single filer, including married couples, and the estimated weighted average rises to about 25.6%. Allow no standard deduction at all, while retaining our household-status assumptions, and it rises to about 23.2%. Do both, treating every household as single and allowing nobody a standard deduction, and the estimate reaches about 26.7%.

None of them gets to 30%.

These aren’t alternative estimates of what association owners actually pay. They’re stress tests deliberately constructed to make the estimated marginal rate higher. Even then, Congress’s 30% approximation remained out of reach.

For Condos, Federal Policy Is Now Pulling in Both Directions

The tax issue applies to qualifying HOAs and condominium associations nationwide.

Condominiums now add another layer to this saga.

After years of increasing concern about deferred maintenance, aging buildings and insufficient reserves, Fannie Mae and Freddie Mac have tightened condominium project standards (not applicable to HOAs). Beginning January 4, 2027, Fannie Mae and Freddie Mac project-review standards generally increase the standard minimum reserve allocation for applicable condominium projects from 10% to 15% of annual budgeted assessment income. Qualifying reserve studies can provide an alternative path, but the direction of federal housing policy is unmistakable. You can read about that here.

Building stronger reserves makes sense. A chronically underfunded building can postpone maintenance only until it can’t. When the bill finally arrives, owners can face enormous special assessments, loans, deferred projects and, increasingly, mortgage-financing problems.

Federal housing policy is pushing condo associations toward stronger financial preparation for future capital obligations;
But at the same time, federal taxation policy can simultaneously take 30% of the taxable income produced as those accumulated reserves earn interest.

The policies weren’t designed together. They come from different parts of the federal government, different statutes and very different eras. But condo owners experience them together.

The better funded an association becomes, the larger its reserve balance becomes. The larger the reserve balance, the greater its potential investment earnings. And the greater those taxable earnings become, the more consequential that 30% rate becomes.

One part of the federal system increasingly says: Save more.

Another still says: We’ll take 30% of the taxable earnings generated while you do it.

The Bill Eventually Finds the Homeowners

Investment income can sound like found money. For an HOA or condo association, it isn’t. Reserve interest is another source of funding for expenses the owners will eventually have to pay anyway.

Suppose an association determines that a major project will cost $3 million ten years from now. There are only so many places that $3 million can come from. Homeowners can contribute it. Investment earnings on their accumulated contributions can provide part of it. Or the association can borrow some of it, which means homeowners ultimately repay principal and interest. Taxing reserve earnings doesn’t make the future project cheaper. It changes how much of its cost can be met by the money homeowners already contributed. The tax doesn’t eliminate the obligation. It changes who ultimately has to fill the gap.

What It Would Actually Take to Change This

Section 528 is federal law. Changing the 30% rate, exempting some or all reserve-fund earnings, or creating different treatment for those earnings would require Congress to amend the Internal Revenue Code. That starts with a member of Congress willing to sponsor the change. Homeowners, association boards, management companies and industry organizations don’t need to arrive on Capitol Hill with finished statutory language. They need a legislative champion, a clearly defined policy request and evidence supporting it. Congressional staff and legislative counsel can turn that proposal into bill language.

Because federal tax legislation originates in the House, a House sponsor is the most direct starting point. A Section 528 bill would ordinarily move through the House Ways and Means Committee, whose jurisdiction includes federal tax legislation. A Senate companion would ordinarily go through the Senate Finance Committee, which has jurisdiction over revenue measures. A proposal would have to clear the relevant committees, pass the House and Senate in the same form, and be signed into law. It could move as a stand-alone bill or become part of a larger tax package.

That gives association owners a practical place to begin. They can contact their own U.S. representative and senators and ask them to examine Section 528’s treatment of association reserve earnings. Association boards, management companies and trade groups can bring reserve studies, tax returns, investment policies and examples showing how much reserve interest is being taxed. And there is now a much more basic question Congress can ask than it did in 1980: if 30% was supposed to approximate association members’ average marginal rate, what does that calculation produce using current national data?

The Local Bills Would Be Separate

Changing Section 528 would change federal law. It would not automatically erase the separate state and District taxes described above. Maryland, Virginia and D.C. would each have to change their own law if lawmakers wanted different treatment for association reserve earnings.

Maryland: An association-specific change could begin with a delegate or state senator willing to sponsor legislation amending Maryland’s tax treatment. Tax bills introduced in the House of Delegates ordinarily go through the House Ways and Means Committee; Senate tax legislation ordinarily goes through the Senate Budget and Taxation Committee. Residents, boards, managers and association organizations can start with their own Maryland legislators, then participate in committee hearings and submit testimony once a bill is introduced. Maryland already expressly recognizes homeowners associations as “special exempt entities,” so lawmakers would be modifying an existing association-specific statutory framework rather than inventing one from scratch.

Virginia: A Virginia proposal likewise needs a member of the General Assembly to introduce it. Tax legislation in the House is handled through the House Finance Committee, while the Senate Finance and Appropriations Committee handles revenue legislation in the Senate. Virginia’s House also provides a public system for written comments and testimony on bills before its committees. The policy choice could be framed narrowly around Section 528 association income rather than changing Virginia’s general 6% corporate rate.

DC: In the District, a Councilmember could introduce legislation changing how qualifying association reserve earnings are treated under the corporate franchise tax. The Council Chairman refers introduced legislation to the committee with jurisdiction, where it can receive a public hearing and markup before consideration by the full Council. If enacted locally, D.C. legislation is also subject to the federal Home Rule review process. The District could therefore create an association-specific exclusion or other treatment without waiting for Congress to amend Section 528, although a federal change and a District change would address different layers of the tax.

The state comparison shows that none of these jurisdictions is locked into one approach. Texas has an HOA-specific franchise-tax exemption for qualifying associations. Florida doesn’t require a state corporate income-tax return from an association filing federal Form 1120-H. North Carolina is phasing its corporate income-tax rate to zero. Utah specifically carries Form 1120-H taxable income into its HOA return at a much lower rate. Those are policy choices, just as the federal 30% rate and the DC, Maryland and Virginia treatments are policy choices.

Forty-six years after Congress chose 30% as an approximation, the path to changing it isn’t mysterious. It requires a sponsor, a bill and enough support to move that bill through the tax-writing process. The same is true locally. The harder question is whether lawmakers are willing to reopen assumptions that have been sitting in the tax code largely undisturbed since 1980.

Sources

Primary sources

26 U.S.C. §528 30% flat rate issue was first brought to my attention by Doris Goldstein at condowonk.com
Senate Finance Committee, S. Rep. No. 96-1036, Miscellaneous Revenue Act of 1980 (Nov. 25, 1980). Confirms that the HOA tax-rate provision was already contained in H.R. 7956 as passed by the House before Senate Finance considered it. Contains the Senate’s explanation of the 30% rate and the “may reasonably approximate” language.
Senate Finance Committee report, S. Rep. 96-1036
H.R. Rep. No. 96-1278, Miscellaneous Revenue Act of 1980 (1980), especially p. 27. The House Ways and Means report. Page 27 is cited by the Justice Department as the House source for the 30% rationale, including the conclusion that the rate could reasonably approximate association members’ average marginal income-tax rate.
Public Law 96-605, Miscellaneous Revenue Act of 1980 (Dec. 28, 1980), §105. This is the enacted statute. H.R. 7956 became Public Law 96-605, and §105 changed §528 from the former highest-corporate-rate system to the flat 30% rate.
Public Law 96-605, official U.S. Code PDF
26 U.S.C. §528, current statute and amendment history. The House’s official U.S. Code history confirms that the 1980 amendment replaced the previous highest-corporate-rate calculation with the 30% rate. It also confirms that §528 covers both condominium management associations and residential real-estate management associations.
26 U.S.C. §528, Office of the Law Revision Counsel
IRS, Form 1120-H FY 1980-81. The instructions explicitly state that the 1980 Act “decreased the tax rate for homeowners associations from 46% of taxable income to 30%.”
IRS 1980-81 Form 1120-H and instructions
U.S. Department of Justice, Solicitor General, American Society of Association Executives v. United States. DOJ described why Congress chose 30% and cited both H.R. Rep. 96-1278 at page 27 and S. Rep. 96-1036 at page 19. DOJ says the rate was chosen in part because HOA members were believed likely to be in higher tax brackets than the association.
DOJ Solicitor General brief

Additional Sources

District of Columbia Office of Tax and Revenue. Form D-20, Corporation Franchise Tax Return and Instructions (Tax Year 2025). D.C. Office of Tax and Revenue, Form D-20
Maryland General Assembly. Tax-General Article §10-101. Maryland Tax-General §10-101
Maryland General Assembly.Tax-General Article §10-304. Maryland Tax-General §10-304
Comptroller of Maryland. Business Income Tax Information. Maryland Comptroller
Virginia Department of Taxation. Ruling of the Tax Commissioner No. 82-173 (Dec. 9, 1982). Virginia Tax Commissioner Ruling 82-173
Virginia Department of Taxation.Virginia Corporate Income Tax. Virginia Department of Taxation
Fannie Mae.Lender Letter LL-2026-03, Updates to Project Standards & Property Insurance Requirements (March 18, 2026). Fannie Mae LL-2026-03
Freddie Mac.Single-Family Seller/Servicer Guide, Increase Replacement Reserve Requirements. Freddie Mac

Reporting History Of Media & Legal Reports On The Miscellaneous Revenue Act of 1980 (Public Law 96-605)

The bill was introduced by Representative Dan Rostenkowski and signed into law on December 28, 1980. It was reported in the financial, real estate, and legal sections of major media outlets.

Late 1980 – Early 1981: The Initial Wave (Financial & Trade Press)

The Wall Street Journal & Major Dailies (December 1980 – January 1981): Early bulletins highlighted the act as part of a year-end legislative rush. Financial columnists outlined how the law fixed a major headache for condo boards and HOAs by establishing a uniform 30% tax rate, rescuing many associations from fluctuating corporate tax brackets or losing their tax-exempt status entirely;
National Real Estate Investor & Community Association Reports (1981): Trade publications extensively broke down the Section 528 amendment. They advised property managers that while the 30% flat rate was higher than the lowest corporate bracket, it eliminated complex tax filings and safely shielded “exempt function income” (like member dues and assessments) from aggressive IRS audits;
Journal of Taxation & CPA Journals (Spring 1981): Legal analysts detailed the broader package, including the newly introduced Section 195 (allowing the amortization of business start-up expenses over 60 months) alongside the Section 528 changes.

1982 – 1990s: Tracking the Precedents & Evolution

Tax Notes & Legal Aggregators (1982–1983): As the IRS began denying retroactive revocations of the Section 528 election, legal media monitored strict compliance disputes. Outlets reported on private letter rulings where associations tried to back out of their Section 528 status to claim lower standard corporate tax structures;
The New York Times & Local Real Estate Columns (Late 1980s): During the broader tax overhauls of the decade (such as the Tax Reform Act of 1986), real estate Q&A columns frequently referenced the 1980 framework to explain to suburban housing developments how their common-area fees were protected under the law.

2000s – Present: The Digital Era

Online Legal Repositories (Thomson Reuters, LexisNexis, Cornell Law): As print media shifted entirely online, references to P.L. 96-605 transitioned into digital compliance guides and static statutory histories;
2000 – 2010: Real Estate Journalism & Digital Archives: Davis-Stirling Act Digital Guides: Statutory platforms dedicated to community associations mapped out the structural timeline, explaining how the Revenue Act of 1978 originally pushed HOA non-exempt tax to the highest regular corporate rate (46%) before the Miscellaneous Revenue Act of 1980 permanently anchored it at 30%;
Community Associations Institute (CAI) & Modern Financial Media (2010s–Present): The law re-entered the media spotlight dynamically whenever new accounting rules surfaced. For instance, modern media reports from platforms like Tax Notes and real estate legal blogs frequently cite the 1980 Act to contrast Section 528 filings against standard Form 1120 corporate returns, illustrating how the rules established in 1980 remain the active foundation for contemporary HOA tax law.

Original Analysis: Washington-Area Association Household Tax Estimate

Congress chose the 30% rate in 1980 on the theory that homeowners association members were “likely to be in higher tax brackets” and that 30% would reasonably approximate their average marginal income-tax rate. The committee report did not support that assumption with an income study of association members. To see what the same exercise might produce today, Real Estate in the District used 2024 U.S. Census Bureau microdata to identify Washington-area owner households actually paying condominium or HOA fees, examine their income distribution, and estimate their average marginal federal income-tax rate using the federal tax brackets in effect for the same year. The methodology and assumptions used in that analysis are detailed below so the calculation can be examined and reproduced.

Used the U.S. Census Bureau’s 2024 American Community Survey 1-Year Public Use Microdata Sample housing files for the District of Columbia, Maryland, Virginia and West Virginia. Beginning with the 2024 ACS, the Census variable CONP includes required homeowners association fees as well as condominium fees.
Selected owner-occupied households reporting a required condominium or homeowners association fee (CONP > 0).
Limited the sample to Public Use Microdata Areas that could be cleanly assigned to the Washington-Arlington-Alexandria metropolitan area. PUMAs that crossed metropolitan boundaries were excluded rather than assigning households to the Washington metro when their location could not be determined from the public-use geography.
Applied the Census household weight (WGTP). The resulting analytical sample contained 7,643 PUMS household records representing approximately 715,449 association-owner households.
Used household income (HINCP) to calculate the weighted income distribution. Estimated median household income was approximately $164,800.
Used Census household-composition information to approximate federal filing status. Married-couple households were modeled as married filing jointly; unmarried householders with qualifying children were modeled as heads of household; other unmarried householders were modeled as single filers.
Applied the applicable 2024 federal standard deduction to household income under the estimated filing status, then applied the 2024 federal individual marginal income-tax brackets to the resulting estimated taxable income.
Calculated the Census-weighted average of those estimated marginal rates. The resulting estimated average marginal federal income-tax rate was approximately 21.8%.

This is an estimate, not a reconstruction of individual tax returns. ACS household income is not identical to federal adjusted gross income or taxable income; households may contain more than one tax unit; taxpayers may itemize deductions; and individual tax circumstances cannot be observed in PUMS. The calculation is intended to test Congress’s stated 1980 rationale for the Section 528 rate using observable association-household income data, not to calculate the actual tax liability of individual households.

Sensitivity tests: Treating all households as single filers produced an estimated weighted average marginal rate of approximately 25.6%. Applying no standard deduction produced approximately 23.2% under the household-status model. Treating all households as single filers and allowing no standard deduction produced approximately 26.7%. None of these alternative specifications produced an estimated average marginal rate of 30%.

Methodology Sources

U.S. Census Bureau. 2024 American Community Survey 1-Year Public Use Microdata Sample (PUMS). Housing records for the District of Columbia, Maryland, Virginia and West Virginia.
U.S. Census Bureau. 2024 ACS PUMS Data Dictionary. Variable definitions used in the analysis, including CONP, HINCP, WGTP, tenure, household characteristics and PUMA geography.
U.S. Census Bureau. ACS User Note: Condominium and Homeowners Association Fees. Documents the 2024 questionnaire change expanding the condominium-fee question to include required homeowners association fees.
U.S. Office of Management and Budget. OMB Bulletin No. 23-01. Metropolitan statistical area delineations used for the Washington-Arlington-Alexandria geography.
Internal Revenue Service. Revenue Procedure 2023-34. 2024 individual federal income-tax brackets and standard deductions used in the calculation.

State Comparison Sources

Florida Department of Revenue. Corporate Income Tax. States that homeowner and condominium associations filing federal Form 1120-H are not required to file a Florida corporate income-tax return.
Texas Comptroller of Public Accounts. Homeowners Associations. Describes the franchise-tax exemption available to qualifying residential homeowners associations.
South Dakota Department of Revenue. Taxes. Confirms that South Dakota does not impose a corporate income tax.
Wyoming Legislature. Legislative Service Office tax comparison. Confirms that Wyoming does not have a corporate income tax.
Nevada Department of Taxation. Commerce Tax FAQs. Commerce Tax applies when Nevada gross revenue exceeds $4 million.
North Carolina Department of Revenue. Corporate tax law changes. Shows the 2% rate for 2026, 1% for 2028 and 0% after 2029 under current law.
Utah State Tax Commission. Form TC-20MC Instructions. For a homeowners association with Section 528 income, Utah begins with federal Form 1120-H taxable income and applies a 4.5% rate.

Legislative Process Sources

U.S. House Committee on Ways and Means. Tax Subcommittee jurisdiction. The Committee has jurisdiction to originate federal tax legislation.
U.S. Senate Committee on Finance. Committee Jurisdiction. Includes taxation and revenue measures generally.
Maryland General Assembly. House Ways and Means Committee and Senate Budget and Taxation Committee. Taxation is within the committees’ stated issue areas.
Virginia House of Delegates. House Finance Committee. Includes the public comment and testimony process for bills before the committee.
Council of the District of Columbia. Committees for Council Period 26. Current Council committee structure and legislative committee framework.

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