How Can a 501(c)3 Rent Property?

By Heather Frances J.D.

A 501(c)(3) nonprofit can generally rent property from someone else to house its operations; it can also rent its own property out to other organizations. For example, a church could rent out its space during the week to another organization that meets during the week. This can have tax consequences but does not necessarily disqualify a nonprofit from its 501(c)(3) tax status.

A 501(c)(3) nonprofit can generally rent property from someone else to house its operations; it can also rent its own property out to other organizations. For example, a church could rent out its space during the week to another organization that meets during the week. This can have tax consequences but does not necessarily disqualify a nonprofit from its 501(c)(3) tax status.

Income Taxes

Exempt nonprofits generally do not have to pay taxes on their incomes, but some types of income are taxable. Depending on the circumstances, the rental income might be considered unrelated business income, a taxable income category for nonprofits. Factors that determine whether the income is taxable include whether the tenant's activities are related to the nonprofit's purpose, how the property is financed, and whether the lease terms are based on the tenant's profit or the nonprofit provides resources or staff time to help the tenant.

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Property Taxes

State laws determine whether the nonprofit's real estate is taxable. Though states may make a nonprofit's real estate tax-exempt as long as the nonprofit uses it for its own purposes, state laws may remove exemptions if a nonprofit begins renting out its property to other organizations. Since these exemptions are location- and fact-specific, nonprofits may want to check with a tax or legal professional before making rental decisions.

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References

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