Nonprofit organizations often have complex tax requirements, as do landlords who own rental property. Not-for-profit rental properties combine many of the factors that make each situation complicated, but legal definitions from the Internal Revenue Agency ensure that nonprofit landlords understand their status and know how and when to file the appropriate tax forms.
Not-for-profit rental property is property that a landlord owns and rents to one or more tenants without making a financial profit. This does not mean that the landlord does not charge rent. Instead, it means that the landlord has nonprofit tax exempt status by virtue of operating a charitable or educational organization and spends at least as much as the amount of rental income on the property's expenses.
There are several different situations that would create a not-for-profit rental property. For example, if a nonprofit religious organization charges its clergy members nominal fees to live in a church-owned housing unit, it would likely constitute nonprofit rental property. Another example is a halfway house that a charitable organization serving ex-felons or the homeless maintains to provide affordable housing for those in need. Commercial landlords who rent to general tenants usually do so for profit.
One of the implications of owning nonprofit rental property is the need to account for it properly when you file your taxes. According to the IRS, as of 2011 the correct place to claim rental income from nonprofit rental property is line 21 on either form 1040 or form 1040NR. Landlords must also report their rental expenses, which include property taxes, administrative costs associated with finding and managing tenants, and money spent on repairs to keep the rental property safe for tenants.
Presumption of Profit Laws
The IRS does not automatically assume that once you begin to rent a property to tenants in a nonprofit scenario that you will continue to do so indefinitely. Each year landlords who own nonprofit rental property report their rental incomes alongside their rental expenses. If rental income exceeds rental expenses in three tax years out of a five-year period, the landlord is presumed to be profiting from the rental property and can no longer claim tax exempt status.