If a private individual leases a property to a non-profit, is there an exemption for property taxes for the term of the lease?

I understand that non-profit organizations do not have to pay property taxes on property that they own. However, if a private individual purchases a property and then leases it to a non-profit exclusively for non-profit use, can the individual owner claim exemption for property taxes for the term of the lease?

Co-Published on Investopedia

Co-Published on Investopedia

Simply leasing a property to a non-profit will not, on its own, exempt a private individual from having to pay property taxes. Since property taxes are state taxes, the exemption will depend on the laws in your individual state. Non-profits are exempt from all state property taxes because they have an official exemption from the IRS which over-rides state law. The private individual, however, isn't a non-profit (approved by the IRS as a 501(c)3 corporation or other non-profit entity) and therefore doesn't fall under this rule.

Some states do offer some property tax exemptions for property owners who lease property to non-profits, but the rules are often very restrictive and will vary state-by-state. Some states require you to get approved for the exemption based on your property being for the public welfare, in an application process similar to applying for non-profit status. 

Other states may require you to place the property in trust so that the property can forever only be leased to non-profits for non-profit uses. And others may include limits on your ability to sell or otherwise use the property in the future.

You will want to talk to a tax attorney and a CPA in your state to get specific advice on whether you can and should attempt this.

Joshua Escalante Troesh is the President of Purposeful Strategic Partners and a tenured professor of Business at El Camino College. To explore working with him on your personal financial planning and investment advising needs, simply schedule a free Discover Meeting.

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