Question: John is working on preparing a Form 990, Return of Organization Exempt From Income Tax, for a local 501(c)(3) nonprofit organization. While working through the return, John notices the organization has some rental income from real estate. After interviewing the president of the organization, he discovers the rent is from a house that was donated to the organization. They charge a flat monthly rental fee for the use of the property and the property is not debt-financed. None of the rent collected was for the lease of personal property. Must John include the rental income in the unrelated business income calculation for this nonprofit?
Answer: No. Rents from real property are excluded in the unrelated business taxable income (UBTI) calculation as long as:
- The property for which the rents are collected is not debt-financed.
- Not more than 50% of the total rent received or accrued was attributable to personal property.
- The determination of the amount of the rent does not depend in whole or in part on the income or profits derived by any person who leased the property.
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Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing.