Property Tax Exemption on Real Estate

Posted on Wednesday, June 06, 2012

Nonprofit organizations in the state of Indiana may file an exemption from property taxes for any real estate (land and buildings) that they own and use for their exempt purpose. What happens though when a nonprofit leases a portion of that building to other nonprofits or even for profit companies?

According to Indiana Code 6-1.1-10-16, “all or part of a building is exempt from property taxation if it is owned, occupied, and used by a person for educational, literary, scientific, religious, or charitable purposes.” If a nonprofit owns and occupies a building and leases a portion to for profit businesses, a split percentage is used in determining the amount of property taxes the nonprofit is liable for. For example, if a nonprofit leases 30% of its building to another company and uses 70% of the building for its exempt purpose, the nonprofit will most likely be liable for 30% of the property taxes on the building. The percentage used for the split is based on the square footage of the building. There may also be discounted rates that come into effect when leasing to other nonprofits. However, if a portion is leased to other nonprofit organizations, it may be possible to get exemption from property tax for that space also.

In order to receive an exemption from property taxes in Allen County, nonprofits are required to complete and file Form 136, Application for Property Tax Exemption. As part of this form, a predominant use calculation is required which details the amount of square footage of the building and what it is used for. If the property is purchased from another nonprofit that already has an exemption, a Notice of Change of Ownership of Exempt Property form is required instead of Form 136. In either case, the proper form should be completed and filed as soon as the real estate (land and building) is purchased.

Posted by: Carrie Minnich, CPA

Posted in Mission Minded Nonprofits

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