Transfer of Parsonage from Church to Pastor?

Discussion in 'Tax' started by Chuck, Sep 21, 2006.

  1. Chuck

    Chuck Guest

    A 501(c)3 -- religious organization -- owns a house which is
    used as a parsonage for the pastor and his family.

    The parties desire to transfer ownership of the home to the
    pastor.

    Is there a way to do this that would reduce the resulting
    tax burden to the pastor? I believe he would have to
    recognize ordinary income to the extent of the home's FMV.

    Thanks.

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    Chuck, Sep 21, 2006
    #1
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  2. "Chuck" <> wrote:

    > A 501(c)3 -- religious organization -- owns a house which is
    > used as a parsonage for the pastor and his family.
    >
    > The parties desire to transfer ownership of the home to the
    > pastor.
    >
    > Is there a way to do this that would reduce the resulting
    > tax burden to the pastor? I believe he would have to
    > recognize ordinary income to the extent of the home's FMV.


    I'd probably set it up so that that the pastor actually buys
    the house on an installment sale. Each year the
    organization gives a bonus to the pastor in an amount that
    will pay for that year's part of the purchase price. Tax
    will still be owed, but stretched out over years and thus,
    hopefully, in lower tax brackets (and just a little at a
    time).

    I suppose you could set it up as an option to buy, and the
    organization gives the bonus in the year the option is
    exercised, with the expectation that it would be exercised
    only when it is sold. So there would be no tax until
    there's cash to pay for it. This way would be more
    problematic, because if it is set up so that the
    organization is legally required to give the bonus or to
    transfer without consideration, the IRS may consider it
    immediately taxable anyway.

    Stu

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    Stuart A. Bronstein, Sep 22, 2006
    #2
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  3. Chuck

    Chuck Guest

    "Chuck" <> wrote:

    > A 501(c)3 -- religious organization -- owns a house which is
    > used as a parsonage for the pastor and his family.
    >
    > The parties desire to transfer ownership of the home to the
    > pastor.
    >
    > Is there a way to do this that would reduce the resulting
    > tax burden to the pastor? I believe he would have to
    > recognize ordinary income to the extent of the home's FMV.
    >
    > Thanks.


    This is a "real life" scenario that a client is facing --
    not a homework question (in case anyone was wondering).

    The property apparently has a FMV of ~$450,000.

    One person I spoke with suggested structuring the transfer
    in such a way that ownership is conveyed from the church to
    the pastor over a period of, say, 5 years. The pastor would
    forego most of his salary during that time period, and the
    church board would designate an appropriate housing
    allowance. That way, the housing allowance would eliminate
    most of the FIT effects in those years. Of course, the
    pastor would still owe some SE tax....

    Thoughts?

    << ======================================================= >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ======================================================= >>
     
    Chuck, Sep 22, 2006
    #3
  4. Chuck

    Charlie K Guest

    Chuck wrote:

    > One person I spoke with suggested structuring the transfer
    > in such a way that ownership is conveyed from the church to
    > the pastor over a period of, say, 5 years. The pastor would
    > forego most of his salary during that time period, and the
    > church board would designate an appropriate housing
    > allowance. That way, the housing allowance would eliminate
    > most of the FIT effects in those years. Of course, the
    > pastor would still owe some SE tax....


    Won't work. The tax free housing allowance is limited ot
    the lower of the fair market value, the amount actually
    used, or the official designated housing allowance. You
    aren't gong to be able to claim $90,000 a year is a fair
    rental, especially with no salary. Also, the excess of the
    housing allowance over fair rental is "other income", and, I
    believe, not subject to SE tax.

    << ======================================================= >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ======================================================= >>
     
    Charlie K, Sep 23, 2006
    #4
  5. Chuck

    tobe Guest

    "Chuck" wrote

    > A 501(c)3 -- religious organization -- owns a house which is
    > used as a parsonage for the pastor and his family.
    > The parties desire to transfer ownership of the home to the
    > pastor....


    Not to be a nosy pill, but why on earth would the religious
    organization want to do this??? What happens if something
    untoward occurs - say the pastor dies, or is caught with his
    hand in the till (or his pants down}. Then the organization
    is without a pastor AND without a parsonage for the new
    pastor!

    << ======================================================= >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ======================================================= >>
     
    tobe, Sep 25, 2006
    #5
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