2023 Laws of Puerto Rico › TITLE THIRTEEN - Taxation and Finance (§§ 1 — 33423) › Subtitle 17 - Internal Revenue Code of 2011 (§§ 30001 — 33423) › PART II - Income Taxes (§§ 30041 — 30622) › Chapter 1012 - Nonprofit Organizations (§§ 30471 — 30487) › Subchapter B - Taxation Of Business Income Of Certain Exempt Organizations And Denial Of Exemption For Certain Prohibited Transactions And Improperly Accumulating Surplus (§§ 30481 — 30487) › § 30484 - Business leases

(a) Rents and deductions of business leases. — In computing under § 30482 of this title the unrelated business net income for any taxable year:
(1) Percentage of income taken into account. — There shall be included with respect to each business lease, as an item of gross income derived from an unrelated trade or business, an amount which is the same percentage (but not in excess of one hundred percent (100%)) of the total income derived during the taxable year under such lease as the business lease indebtedness, at the close of the taxable year, with respect to the premises covered by such lease is of the adjusted basis, at the close of the taxable year, of said premises.
(2) Percentage of deductions taken into account. — There shall be allowed as a deduction with respect to each business lease, to be taken into account in computing unrelated business net income, an amount which shall be determined by applying the percentage derived under clause (1) to the sum determined under clause (3).
(3) Deductions allowable. — The sum referred to in clause (2) is the sum of the following deductions allowable under §§ 30121—30140 of this title:
(A) Taxes and other expenses paid or accrued during the taxable year upon, or with respect to, the real property subject to the business lease;
(B) interest paid or accrued during the taxable year on the business lease indebtedness, and
(C) a reasonable allowance for exhaustion, wear and tear (including a reasonable allowance for obsolescence) of the real property subject to such lease.
When only part of the real property is subject to the business lease, there shall be taken into consideration under paragraphs (A), (B), and (C) only such amounts as are properly allocable to the premises covered by the lease.
(b) Definition of business lease. —
(1) General rule. — For purposes of this section, the term “business lease” means a lease for a term of more than five (5) years of real property by an organization, if at the close of the lessor’s taxable year there is a business lease indebtedness (as defined in subsection (c)) with respect to such property.
(2) Special rules for applying clause (1). — For purposes of clause (1):
(A) In computing the term of a lease which contains an option for renewal or extension, the term of such lease shall be considered as including any period for which such option may be exercised, and the term of any lease made pursuant to an exercise of such option shall include the period during which the prior lease was in effect. If real property is acquired subject to a lease, the term of such lease shall be considered to begin on the date of such acquisition.
(B) If the property has been occupied by the same lessee for a total period of more than five (5) years beginning not earlier than the date of acquisition of the property by the organization or trust (whether such occupancy is under one or more leases, renewals, extensions, or continuations thereof), the occupancy of such lessee shall be considered to be under a lease for a term of more than five (5) years within the meaning of clause (1). However, subsection (a) shall apply in the case of a tenancy described in this clause (and not within paragraph (A)) only with respect to the sixth (6th) and succeeding years of occupancy by the same lessee. For purposes of this paragraph, the term “same lessee” shall include any lessee of the property whose relationship with a lessee of the same property is such that losses with respect to sales or exchanges of property between the two (2) lessees would be disallowed under § 30137(b) of this title.
(3) Exceptions. —
(A) No lease shall be considered a business lease if:
(i) Such lease is entered into primarily for purposes which are substantially related (aside from the need of such organization for income or funds or the use it makes of the rents derived) to the exercise and performance by such organization of its charitable, educational, or other purpose or function constituting the basis for its exemption under § 30471 of this title, or
(ii) the lease is of premises in a building primarily designed for occupancy, and occupied, by the organization.
(B) If a lease for more than five (5) years to a tenant is for only a portion of the real property, and space in the real property is rented during the taxable year under a lease for not more than five (5) years to any other tenant of the organization, leases of the real property for more than five (5) years shall be considered as business leases during the taxable year only if:
(i) The income derived from the real property during the taxable year under leases for more than five (5) years (not including, as a lease for more than five (5) years, an occupancy which is considered as such a lease by reason of clause (2)(B)) represents fifty percent (50%) or more of the total income derived during the taxable year from the real property; or the area of the premises occupied under leases for more than five (5) years (not including, as a lease for more than five (5) years, an occupancy which is considered as such a lease by reason of clause (2)(B)) represents, at any time during the taxable year, fifty percent (50%) or more of the total area of the real property rented at such time, or
(ii) income derived from the real property during the taxable year from any tenant under a lease for more than five (5) years (including as a lease for more than five (5) years an occupancy which is considered as such a lease by reason of clause (2)(B)), or from a group of tenants (under such leases) who are partners, represents at any time during the taxable year, more than ten percent (10%) of the total income derived during the taxable year from such property, or the area of the premises occupied by any such tenant, or by any such group of tenants, represents at any time during the taxable year more than ten percent (10%) of the total area of the real property rented at such time.
(iii) In the application of subparagraph (i), if during the last half of the term of a lease, a new lease is made to come into effect after the expiration of such lease, the unexpired portion of such lease on the date the second lease is made shall not be treated as a part of the term of the second lease.
(c) Business lease indebtedness. —
(1) General rule. — The term “business lease indebtedness” means, with respect to any real property leased for a term of more than five (5) years, the unpaid amount of:
(A) The indebtedness incurred by the lessor in acquiring or improving such property;
(B) the indebtedness incurred before the acquisition or improvement of such property, if such indebtedness would not have been incurred but for such acquisition or improvement, and
(C) the indebtedness incurred after the acquisition or improvement of such property, if such indebtedness would not have been incurred but for such acquisition or improvement, and the incurrence of such indebtedness was reasonably foreseeable at the time of such acquisition or improvement.
(2) Property acquired subject to mortgage or other similar lien. — If real property is acquired subject to a mortgage or other similar lien, the amount of the indebtedness secured by such mortgage or lien shall be considered (whether the acquisition was by bequest, devise, or purchase) as an indebtedness of the lessor incurred in acquiring such property even though the lessor did not assume or agree to pay such indebtedness, except that, if real property was acquired by gift, bequest, or devise before January 1, 1962, subject to a mortgage or other similar lien, the amount of such mortgage or other similar lien shall not be considered as an indebtedness of the lessor incurred in acquiring such property.
(3) Certain property acquired by gift, devise, or bequest. — If real property was acquired by gift, bequest, or devise before January 1, 1962, subject to a lease requiring improvements of such property on the happening of stated contingencies, indebtedness incurred in improving such property in accordance with the terms of such lease shall not be considered as an indebtedness for purposes of this subsection.
(4) Certain corporations described in § 30471(a)(9)(A) of this title. — In the case of a corporation described in § 30471(a)(9)(A), all of the stock of which was acquired before January 1, 1962, by an organization described in subsections (a)(8)(A), (a)(2)(A), or (a)(3)(C) of § 30471 of this title (and more than one-third of such stock was acquired by such organization by gift or bequest), any indebtedness incurred by such corporation before January 1, 1962, and any indebtedness incurred by such corporation on or after such date for the improvement of real property in accordance with the terms of a lease entered into before such date, shall not be considered as an indebtedness with respect to such corporation or such organization for purposes of this subsection.
(5) Certain trusts described in § 30471(a)(4)(D) or § 30391(a) of this title. — In the case of a trust described in § 30471(a)(4)(D) or § 30391(a) of this title, or in the case of a corporation described in § 30471(a)(9)(A) of this title, all the stock of which was acquired prior to January 1, 1962, by a trust described in § 30471 or § 30391(a) of this title, any indebtedness incurred by such trust or such corporation before January 1, 1962, in connection with real property which is leased before such date, and any indebtedness incurred by such trust or such corporation on or after such date necessary to carry out the terms of such lease, shall not be considered as an indebtedness with respect to such trust or such corporation for purposes of this subsection.
(6) Business lease on a portion of property. — In determining the amount of the business lease indebtedness where only a portion of the real property is subject to a business lease, proper allocation to the premises covered by such lease shall be made of the indebtedness incurred by the lessor with respect to the real property.
(7) Special rule applicable to trusts described in § 30471(a)(4)(D) or § 30391(a) of this title. — In the application of clause (1), if a trust described in § 30471(a)(4)(D) or § 30391(a) of this title which is part of a stock bonus, pension, or profit-sharing plan of an employer lends any money to another trust described in § 30471(a)(4)(D) or § 30391(a) which is part of a stock bonus, pension, or profit-sharing plan of the same employer, such loan shall not be treated as an indebtedness of the borrowing trust, except to the extent that the loaning trust:
(A) Incurred any indebtedness in order to make such loan;
(B) incurred indebtedness before the making of such loan which would not have been incurred but for the making of such loan, or
(C) incurred indebtedness after the making of such loan which would not have been incurred but for the making of such loan and which was reasonably foreseeable at the time of making such loan.
(d) Personal property leased with real property. — For purposes of this section, the term “real property” and the term “premises” include personal property of the lessor leased by the same to a lessee of its real estate if the lease of such personal property is made under, or in connection with, the lease of such real estate.
History —Jan. 31, 2011, No. 1, § 1102.04, retroactive to Jan. 1, 2011.