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Nonprofit Law/Real property donated to a 501(c)(3) non-profit


QUESTION: We are a christian ministry mainly helping with power bills, medicine, clothing and food. If we are donated several homes, can we rent them to low-income families, and charge $200.00 a month in rent?? Also who holds the deed to the houses, because I would assume that property donated would go out of the donors name and into the ministry's name.

ANSWER: The property must go into the name of the 501(c)(3) organization for the IRS to allow it to be treated as a charitable donation.  Then the 501(c)(3) organization may rent out the homes, but should rent for at least market rates or, in the alternative, decide in a standard manner, who, of low-income families would receive the rental property at below market rates. Revenue Ruling 56-304 has:

--- Start of Excerpt ---
/// organizations of this character which make such
distributions should maintain adequate records and case histories
to show the name and address of each recipient of aid; the amount
distributed to each; the purpose for which the aid was given; the
manner in which the recipient was selected and the relationship,
if any, between the recipient and (1) members, officers, or
trustees of the organization, (2) a grantor or substantial
contributor to the organization or a member of the family of
either, and (3) a corporation controlled by a grantor or
substantial contributor, in order that any or all distributions
made to individuals can be substantiated upon request by the
Internal Revenue Service.
---End of Excerpt---
(cited with approval in IRS instructions for Form 1023 Application
for Exemption on pdf page 23 middle column) at:

I am assuming that the homes are not subject to any mortgage.  If they are, let me know and I will reply further.  I am also assuming that the 501(c)(3) organization will receive more than 80% of its total income, even after considering the rentals, from sources other than rentals or unrelated business activity.

on page 9 of we see "Rents from real
property... are excluded in computing unrelated business taxable
income." However, on pages 14-19 as to Unrelated debt-financed
property, we see that, if there has been recently  debt-financing
(like a mortgage),  rents are, at least to some extent, unrelated
business  taxable income. There are exceptions to that exception
listed below in that IRS publication, for example when the rental
amount is computed from net income.

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.    

---------- FOLLOW-UP ----------

QUESTION: I think I've stumbled onto a hornets nest!! Most of our income comes from the sale of donated items, but a large part is now coming from the property rentals ranging from $200-$800 per month. I have no knowledge as to how its calculated because Ive seen the same house being rented for $600 a month then $800 a month to a different family so I assume by income. And under the register of deeds in NC (because I checked), the properties (the ministry "Manager" is now renting out) are currently inhabited by employees and volunteers, others to family members and friends of the donor himself, and are in fact still listed under the donors name. Yet the ministry collects the rent from each property, and provides the maintenance. So is this in violation of the 501(c)(3), or is my manager just doing the community a service by providing low income housing? Thank you so much for your help!!!

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.  Your specific issues should be dealt with and I would be willing to work on your matter, but I would need to spend a substantial amount of time and that would be beyond the scope of my offer of free services.  If you want to inquire about hiring me for such work, please contact me directly to the email address below. You may have, like you wrote, run into a hornet's nest for the reasons that you mentioned (and I agree with).

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


DO NOT GIVE ME INFORMATION THAT YOU WANT KEPT CONFIDENTIAL. 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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