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I am treasurer for a non-profit corporation. Is there a

I am treasurer for a...
I am treasurer for a non-profit corporation. Is there a percentage of income from rental income that could threaten non-profit status?
JA: Can you tell me where the nonprofit is registered?
Customer: New Mexico.
JA: Has anything been officially filed? If so, what?
Customer: We file annual income tax returns. The percentage of rental income is growing as non-profit income drops.
JA: Anything else you want the lawyer to know before I connect you?
Customer: No
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10/17/2017
Tax.appeal.168
Tax.appeal.168, Tax Accountant
Category: Tax
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Hello. Thank you for choosing this Q&A service for assistance. My name is Angela. I will be assisting you.

Q: Is there a percentage of income from rental income that could threaten non-profit status?

A: This will depend on the type of rental income it is. In general, Rental income from real property is excluded from UBI if there is no acquisition indebtedness on the property. There is no maximum percentage if there is no acquisition indebtedness on the property. If there is acquisition indebtedness, note item #2. SEE BELOW:

------------------------------------------------

  1. Acquisition debt is defined as the unpaid debt incurred by an organization (1) when acquiring or improving property, (2) before acquiring or improving property if the debt would not have been incurred except for the acquisition or improvement, or (3) after acquiring or improving the property if the debt would not have been incurred except for the acquisition or improvement. Acquisition debt also includes liens similar to a mortgage. A lien is similar to a mortgage if titled to property encumbered by a lien for the creditor’s behalf such as a security interest under the Uniform Commercial Code.
  2. Rental income from real property that is subject to acquisition indebtedness is excluded from UBI if 85% or more of the use of the property is substantially related to the organization’s exempt purpose.The percent of usage can be determined by dividing the time the property is used for exempt purposes by the total time the property is used (hours) or by dividing the part of the property that is used for exempt purposes by the part used for all purposes (square footage).
  3. Rental income from real property that is subject to acquisition indebtedness is excluded from UBI if the lessee is a related organization. For this purpose an exempt organization is related to another exempt organization only if:
    • One organization is an exempt holding company and the other receives profits derived by the exempt holding company.
    • One organization controls the other
    • More than 50% of the members of one organization are members of the other
    • Each organization is a local organization directly affiliated with a common state, national, or international organization that is also exempt.
  4. Rental income from personal property is included as UBI and subject to UBIT.

REFERENCE SOURCE:

http://nonprofit.belfint.com/rental-income-taxable-to-my-nonprofit-or-not/

--------------------------------

Additional Info.

Rents.

Rents from real property, including elevators and escalators, are excluded in computing unrelated business taxable income. Rents from personal property aren’t excluded. However, special rules apply to “mixed leases” of both real and personal property.

REFERENCE SOURCE:

https://www.irs.gov/pub/irs-pdf/p598.pdf

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