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Law Educator, Esq.
Law Educator, Esq., Attorney
Category: Business Law
Satisfied Customers: 111525
Experience:  All corporate law, including non-profits and charitable fraternal organizations.
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Can a non-profit rent out there building to anyone in the

Customer Question

Can a non-profit rent out there building to anyone in the community to earn money for the organization. (such as Weddings, parties, etc.
Submitted: 1 year ago.
Category: Business Law
Expert:  Law Educator, Esq. replied 1 year ago.

Thank you for your question. I look forward to working with you to provide you the information you are seeking for educational purposes only.

Yes a non-profit can rent out their building to anyone they choose. IF the proceeds from the rentals do not go to their charitable purpose, they are considered unrelated business income and would have to be claimed on a tax return and taxes paid. If the rental is a passive rental, such as the non-profit owns property and merely rents it but provides no services related to the rental it would be an exception. But renting for weddings etc would be unrelated income as they are providing a service with the rental and would be an unrelated business income to their charitable purpose.

Expert:  Law Educator, Esq. replied 1 year ago.

Did you have any further questions for us about this matter?

Customer: replied 1 year ago.
Not sure I understand the answer? We are a non profit yacht club, so if we rent our club house to non members, as long as the funds go towards the yacht club's funds it is legal? Right?
Expert:  Law Educator, Esq. replied 1 year ago.

Thank you for your reply.

If you rent the property to non-members and the income goes towards operating in accordance with the purpose outlined in your non-profit declaration, it is not unrelated business income. The key according to the IRS is whether or not you are providing "services" in relation to the rental. Services can include staff. If you merely rent out the building without providing them anything further, they are responsible for set up and clean up, then it is passive income that is not considered unrelated business income. If you provide anything in conjunction with the rental more than use of the premises, you need to form a separate company or LLC to handle those rentals, because the income would be unrelated business income to the non-profit and that is taxed at a higher rate than it would be if you used an LLC to handle those rentals and to turn over all of the profits to the non-profit as a charitable donation to the non-profit for the purpose of the non-profit's activities. It is a very fine line that the IRS looks at closely.