Church 501(c)(3) buys property with a total of four units; church pastor will occupy one unit and the church will use one unit for recreational purposes. The other two units will be rented. What is the tax implication?
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Property purchased by Church
Item 1. Unit 1 for pastors residence. No consequence to church. The fair rental value
of this unit would be reported to the pastor as a housing allowance. Nontaxable to pastor.
This would be subject to S E Tax for the pastor, however.
Item 2. Unit 2 used for recreational purposes for the members-organizations in the
church.
Item 3. 2 Units to be rented out. This would probably be taxable income to the church
as unrelated income. Also would probably be subject to Real Estate Tax
by the city, schools, etc. You should check with the city tax board on this.
Our church was going to do this several years ago, until I told them to verify with
the city, county tax board. Church went ahead and bought the property but
instead of renting it out, It was used for University students, rent free, who did not
have any other place to stay,or could not afford another place. -
Red Flag!!!!!!!!!!!!
Warning here. The 990 form has a Private Inuerment(sp) test on it. If the Church fails this test, they will loose their non-profit status and/or have to pay income tax on thier excess revenue over expenses. A Church in which 50% of their assets are retnal properties, is in my opinion, putting thier tax exempt status in jeopardy. Also many localities are outright greedy and may try to get more than thier share of Real Estate Taxes from this chruch. I would try to figure some way to at least get part of the rental property to be used for church functions. Hopefully the local Govt. involved are not anti-Religious bigots like the ones in my area. I have a client who bought a property for 175,000 to be used as a Religious Home-School Coop. The County is getting 25,000 per year from them in Real Estate taxes, and the case is already at the State Superior Court level.Comment
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