1. Home
  2. Taxes General Forum
  3. renting vacant church rooms for profit

renting vacant church rooms for profit

As with everyone else, churches are being pummelled around in this economy--higher costs and lower donations.

I?m on the committee to work on ideas to reduce the mortgage debt at our church. One of our ideas involves renting rooms (in a vacant part of the church) out for office space. Also renting the Activity Center for showers, dinners & such, maybe even exercise groups.

Would renting out for profit would jeopardize our non-profit tax status? The financial details of any such arrangement would not go thru the church accounts as such, but would be a separate financial account.

Sandra

Reply to
sandybeth
Loading thread data ...

It shouldn't. However, the income could be subject to UBIT, and renting out space might jeopardize your real estate tax exemption.

Seth

Reply to
Seth

The direct answer is: No, the church would not lose its exempt status. However, it is quite possible that the church could have net rental income that is categorized as Unrelated Business Income (UBI) and subject to the Unrelated Business Income Tax (UBIT). This could happen if the property is subject to acquisition debt. In more simple terms, if there is a mortgage on the property being rented then some or all of the net rental income may be subject to tax. No debt... no tax. In addition, there are exceptions to the tax.

Reply to
Alan

If your church was in California you would lose part of the church exemption from property taxes. More info available if needed

Reply to
Avrum Lapin

"sandybeth" wrote

The renting out of space is not related to your non-profit charitable religious purpose, so the rental income (profits) are going to be taxable income to the church (regardless of if there is a mortgage or not). As another mentioned, it could harm any exemptions for property taxes, at least on the space being rented out.

One issue to be aware of and consider is the laws you'd break for denying rents to certain people, businesses, etc based on their activities not being compatible with your beliefs and religious doctrine. Be careful you don't run afoul of anti-discrimination laws related to rentals.

Talk to the church lawyer. On both issues.

Reply to
paulthomascpa

Believing in the separation of church and state, I support (kinda) the idea that legitimate churches should not be taxed. But the statement above makes no sense to me. Why should UBI matter whether or not there is a debt on the property? If the church rents out space for outside, non-church use then it has income that should be taxed regardless of debt obligation. Taken that to extreme, if I pay off the mortgage on a

4-plex then all rental income from that point forward is tax-free? Nonsense.

Chip

Reply to
Chip Wood

You'll have to ask Congress. That's what's in Code Sec. 512(b).

Reply to
Alan

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.