As such, a nonprofit’s rental income is usually exempt from taxation, unless the property is mortgaged. Though most rent-generating activities are considered commercial in nature, the IRS categorizes most rental income as passive, and not the active conduct of a business. Rental income generated by a nonprofit is unique. And while it is OK to have such revenue, the net proceeds of such activity is taxable to a nonprofit. Revenue from the sale of goods or services not related to an organization’s charitable purpose is called unrelated business income. We need to say a word about rental income, since many nonprofits have real estate that they rent to others.
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