A nonprofit must utilize all revenue to operate the organization. The organization itself cannot generate a profit, but it can rent out real property it owns (for example, physical buildings and structures), receive rental income, and utilize that income in operating the nonprofit.
Is sublease income unrelated business income?
According to IRC Section 512(b)(3), rents from real property are excluded from unrelated business taxable income. Those services usually or customarily rendered in connection with the rental are not considered rendered to occupants.
Can a nonprofit rent out a church building?
The best way to understand the key issues related to nonprofits’ ownership of a rental property is by example. Let’s say a religious organization owns a church building. The organization may rent out the church to a third party for events whether that third party is nonprofit or for-profit.
Can a church allow an outside group to use its facilities?
ALLOWABLE USE UNDER FEDERAL TAX LAW The church may allow any organization to use its facilities that is recognized by the Internal Revenue Service as exempt from income tax and described in Section 501(c)(3) of the Internal Revenue Code.
Can a nonprofit organization rent out real property?
A nonprofit organization can usually rent property from a third party without issue, just like any other entity. However, there are some restrictions on a nonprofit’s ability to rent out real property to a third party.
Is the rental of a church a passive investment?
There is also a question of whether the rental investment is active or passive. Renting out real estate is generally considered a passive investment, and is thus tax exempt, as the church is merely operating as a landlord. However, providing personal services beyond the rental of space would likely generate taxable income.
