What’s Exempt From the Federal Tax on Charities’ Unrelated Business Income

October 18, 2001 | Read Time: 3 minutes

Income from activities in which at least 85 percent of the work involved in generating the revenue is conducted by volunteers.
Income from the sale of merchandise at least 85 percent of which was donated to the nonprofit group. Example: revenue from Salvation Army or Goodwill thrift stores.

ALSO SEE:

The Business of Charity

Income from noncommercial bingo games.
Gambling income generated in North Dakota by nonprofit groups located in that state.

Income from special fund-raising events, advertising in one-time publications, or any other activity that a nonprofit group does not regularly conduct.
Income from entertainment or recreational activities at state fairs, expositions, agricultural shows, and similar events — as long as the activity is designed to attract the public or promote animal breeding.
Income from trade shows, including sales of tickets, books, and other merchandise.

Income from activities carried on primarily for the convenience of an organization’s members, employees, clients, students, or others. Example: income from a cafeteria in a museum or university building.
Income from services provided by larger hospitals to small hospitals, such as bill collection and laboratory work.
Income from services that have been carried out since at least May 27, 1959, by a religious order under license issued by a federal agency.

Income from property that has been purchased with help from a loan, as long as at least 85 percent of activities on the property are related to the group’s mission.
Gross income from mortgaged property used for research.
Gross income from mortgaged property used as a thrift shop, by volunteer workers, or for services provided as a convenience to members, employees, clients, students, or others.
Income from mortgaged property in a nonprofit group’s neighborhood bought with the goal of expanding. Example: If a church or university buys the property next door with the intention of building new facilities on it within 10 years (15 years for a church), any income from the rental of that property in the interim is not taxable.
Income from mortgaged property donated or bequeathed to a nonprofit organization. Example: A charity could collect rent for 10 years on property it received through a bequest and then sell it without paying taxes on the rental income.
Income from mortgaged property a nonprofit group obtains in exchange for paying an annuity to the donor.
Rental income from mortgaged low-cost housing projects insured by the Federal Housing Administration.
Rental income from real property that is not debt-financed, including office buildings and shopping malls.
Income from the rental of personal property provided in conjunction with real property. Example: furniture in an office building of which a nonprofit group is the landlord.

Income from contracts to do government research.
Income from research conducted by a university, college or hospital.
Income from research by a nonprofit organization whose primary mission is to conduct fundamental research that has no direct, immediate commercial application.

Donations received as a result of distributing low-cost items, such as greeting cards.
Income from the sale or rental of donor lists to other charities.
Royalty income, such as revenue generated when a nonprofit group allows a commercial business to use its name on merchandise or credit cards.
Gross income from an unrelated business activity that a nonprofit group carries on regularly, but which has lost money continuously over a number of years, and therefore cannot be considered a business conducted with the intention of making a profit.