Tax deduction for letting a nonprofit use an office in the building?

Question

i'm the director of a pregnancy help center and we need to move our office. would a business owner be able to get a deduction for allowing us to use a part of there building rent free? and if not, would it be unethical to pay them rent and then have them pay us back and call it a donation? any thoughts would be great! thank you!

Answer 1

it's no effect to your side. You would get rental expense = to the non-cash contribution that you would receive from the business owner. The business owner would have rental income and also a charitable contribution. The only problem for the business owner might be that if he's an individual rather than a corporation he would have to recognize the rental income on his schedule C, and the forgiven rent on his Schedule A as a charitable contribution. If he doesn't itemize he'd be recognizing the income, but not getting the expense deduction. Also, some states have certain guidelines for non-profits to follow. Massachusetts for example has different gross income levels (which the non-cash contribution of forgiven rent would be included in) for non-profits. If the income is under $100,000, all that MA needs is Form PC and a copy of the federal 990, above the $100,000 but less than $500,000 MA needs Form PC, copy of the federal 990, and reviewed financial statements, above the $500,000, MA needs Form PC, copy of the 990, and audited financial statements. So you might actually push your non-profit into filing more paperwork than it may need.

Answer 2

The business would not be able to take a deduction for the rent-free use of their facilities. If they paid your utility bills, or had other out of pocket expenses related to the operation of the facility, then that may be considered a donation to your organization.

If you paid them rent, that is taxable income to the company. If they then gave it back to you, they could deduct the income they realized, so the net on that is zero.

So the payment and donation idea may not be unethical, but it doesn't achieve any benefit to the company. Your organization gets free rent either way.

Answer 3

It all depends on the way the business is set up. If the business is a sole proprietorship (income reported on Schedule C of an individual's tax return), than the owner of the business can claim a deduction on Schedule A of their tax return (a noncash contribution), subject to the 50% income limitation (the deduction cannot be more than half their income).
If the business is set up as a C corporation, no deduction is allowed.
If the business is set up as an S corporation, a deduction is not allowed to the corporation, but the indivudual(s) who own the corporation may claim a deduction on their personal tax return (the income of an S corporation is taxed at the indivudual level; income and deductions flow through a form K1).
Finally, if the business is a partnership, the partners may claim a deduction in the same manner as they would if it were an S corporation (the deduction would flow onto their individual tax return from the K1).
Hope this helps.
Good luck!

Answer 4

Only their actual out-of-pocket costs would qualify as a charitable donation, assuming that you are a propertly registered charity. Merely being a non-profit does not qualify in and of itself. Any lost or forgone profits would not be deductible. It's really a moot point, since they would not be realizing any income from you and their expenses would still be deductible.

A pay-back arrangement would not be deductible at all for the building owner