(a) A person is entitled to an exemption from taxation of:(1) the buildings and tangible personal property that the person owns and that are used for a school that is qualified as provided by Subsection (d) if: (A) the school is operated exclusively by the person owning the property;(B) except as permitted by Subsection (b), the buildings and tangible personal property are used exclusively for educational functions; and(C) the buildings and tangible personal property are reasonably necessary for the operation of the school; and(2) the real property owned by the person consisting of: (A) an incomplete improvement that: (i) is under active construction or other physical preparation; and(ii) is designed and intended to be used for a school that is qualified as provided by Subsection (d); and(B) the land on which the incomplete improvement is located that will be reasonably necessary for the use of the improvement for a school that is qualified as provided by Subsection (d).(b) Use of exempt tangible property for functions other than educational functions does not result in loss of an exemption authorized by this section if those other functions are incidental to use of the property for educational functions and benefit the students or faculty of the school.(c) A person who operates a school that is qualified as provided by Subsection (d) of this section is entitled to an exemption from taxation of those endowment funds he owns that are used exclusively for the support of the school and are invested exclusively in bonds, mortgages, or property purchased at a foreclosure sale for the purpose of satisfying or protecting the bonds or mortgages. However, foreclosure-sale property that is held by an endowment fund for longer than the two-year period immediately following purchase at the foreclosure sale is not exempt from taxation.(d) To qualify as a school for the purposes of this section, an organization (whether operated by an individual, as a corporation, or as an association) must: (1) be organized and operated primarily for the purpose of engaging in educational functions;(2) normally maintain a regular faculty and curriculum and normally have a regularly organized body of students in attendance at the place where its educational functions are carried on;(3) be operated in a way that does not result in accrual of distributable profits, realization of private gain resulting from payment of compensation in excess of a reasonable allowance for salary or other compensation for services rendered, or realization of any other form of private gain and, if the organization is a corporation, be organized as a nonprofit corporation as defined by the Texas Non-Profit Corporation Act;(4) use its assets in performing the organization's educational functions or the educational functions of another educational organization; and(5) by charter, bylaw, or other regulation adopted by the organization to govern its affairs direct that on discontinuance of the organization by dissolution or otherwise the assets are to be transferred to this state, the United States, or an educational, charitable, religious, or other similar organization that is qualified as a charitable organization under Section 501(c)(3), Internal Revenue Code of 1954, as amended.(e) In this section, "building" includes the land that is reasonably necessary for use of, access to, and ornamentation of the building.(f) Notwithstanding Subsection (a), a person is entitled to an exemption from taxation of the buildings and tangible personal property the person acquires for use for a school that meets each requirement of Subsection (d) if:(1) the person authorizes the former owner to continue to use the property pending the use of the property for a school; and(2) the former owner would be entitled to an exemption from taxation of the property if the former owner continued to own the property.(g) A property may not be exempted under Subsection (a)(2) for more than three years.(h) For purposes of Subsection (a)(2), an incomplete improvement is under physical preparation if the person has:(1) engaged in architectural or engineering work, soil testing, land clearing activities, or site improvement work necessary for the construction of the improvement; or(2) conducted an environmental or land use study relating to the construction of the improvement. Acts 2003, 78th Leg., ch. 288, Sec. 2.05, eff. Jan. 1, 2006 Acts 2003, 78th Leg., ch. 288, Sec. 1.05, eff. June 18, 2003 Acts 1999, 76th Leg., ch. 138, Sec. 4, eff. May 18, 1999 Acts 1997, 75th Leg., ch. 1411, Sec. 4, eff. June 20, 1997 Acts 1997, 75th Leg., ch. 1293, Sec. 1, eff. Sept. 1, 1997 Acts 1997, 75th Leg., ch. 1039, Sec. 10, eff. Jan. 1, 1998 Amended by Acts 1981, 67th Leg., 1st C.S., p. 130, ch. 13, Sec. 36, eff. Jan. 1, 1982 Acts 1979, 66th Leg., p. 2239, ch. 841, Sec. 1, eff. Jan. 1. 1980.