A 501(c)(2) lets one nonprofit hold its building in a separate title-holding corporation. But what happens when several organizations want to own one property together?
That's the 501(c)(25).
A 501(c)(25) is a title-holding corporation owned by more than one exempt organization. It holds the real estate, collects the income, and passes the net income to its owners according to their shares.
How it works:
1. Qualified organizations — charities and other exempt organizations, certain pension trusts, and government bodies — form one holding corporation together. Up to 35 owners.
2. The property goes into the corporation's name.
3. The corporation collects rent, pays the property's expenses, and distributes what's left to the owners.
4. It files its own Form 990 every year.
The benefits:
1. Nonprofits can buy together what none could buy alone. Three organizations pool their resources for one building instead of each struggling separately.
2. Liability stays in the box. A lawsuit over the property reaches the holding corporation — not the owners' programs, donations, or other assets.
3. Clean shared ownership. One entity, one set of books, every owner's share spelled out in writing — instead of several names tangled on one deed.
4. Owners can get out. An owner can sell its interest to another qualified organization or have the corporation buy it back, on 90 days' notice. Nobody is locked in forever.
5. Tax-exempt pass-through. The rental income reaches the exempt owners without the holding corporation paying tax on it.
The price of those benefits is strict discipline:
— One class of shares only — every owner holds the same kind of interest.
— Title-holding only. Income from anything beyond holding the property and passing rent through can destroy the exemption.
— Rent from personal property — furniture, equipment — can't exceed 15% of the total rent.
(c)(2) vs (c)(25), in one line: one parent, or a group of organizations. Same idea — the building lives in its own corporation, and the mission stays protected.
If your organization is thinking of buying property with partners, the structure you choose at the start decides how protected you are at the end.
— 501c3 Expert
We handle all your 501(c)(3) paperwork — nonprofits set up from start to finish, and Form 990s prepared every year.
Call/text 561-212-1192 · 501c3expert.com
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