Nonprofit Law/asset sale


If a non profit organization sells real estate, that has a mortgage, for profit, is there an extra tax liability?

Is there some type of rule that the mortgage must be paid off 60 days prior to sale in order to circumvent these extra tax liabilities

I have in my profile that this free forum is only for general questions relating to IRS federal exemption issues of 501(c)(3) organizations. Therefore, I will only be addressing federal taxes, not New Jersey taxes.

See pages 14-19 of as to Unrelated debt-financed property, we see that, if there has been recently  debt-financing (like a mortgage), the gain of the sale, at least to some extent, is unrelated business  taxable income. There are exceptions to that exception
listed below in that IRS publication. For example, on page 16 "If substantially all (85% or more) of the use of any property is substantially related to an organization's exempt purposes, the property is not treated as debt-financed property."

Harvey Mechanic, Attorney at Law -

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.  

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Harvey Mechanic


I am an attorney and I volunteer time to answer general questions about U.S. Federal income tax issues of nonprofit 501(c)(3) public charities only. Those questions could be about establishing and maintaining legal requirements for such non-profit organizations in the United States, including Internal Revenue service filings and requirements. I will not be working on this free forum to answer questions about Nonprofit's possible unrelated or for-profit businesses or how to fill out forms. This forum is only for general questions about federal tax law, not as the law applies to your specific situation. If you do not make your question public then I will not be spending much of my donated time on answers that would not benefit the public. If you have other questions, please contact me at I will reply from my email. In any case, do not reveal confidential information to me until after I have contracted with you to provide personal legal services. My responses on this forum are intended to be general statements of law, should not be relied upon as legal advice, and do not create an attorney/client relationship. For me to consider your individual situation and how the law applies, I would need to gather extensive information about the situation. To search my previous answers you can do a Google search by "" without the quotes and then add your search terms before hitting enter.


I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar and I have maintained my status with the Bar since that time.


B.S. Columbia University in New York City, 1970

J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude.

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