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Transfer of Parsonage from Church to Pastor?

 
 
Chuck
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      09-21-2006, 01:48 AM
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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Stuart A. Bronstein
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      09-22-2006, 09:04 PM
"Chuck" <(E-Mail Removed)> 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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Chuck
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      09-22-2006, 09:43 PM
"Chuck" <(E-Mail Removed)> 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?

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Charlie K
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      09-23-2006, 06:56 AM
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.

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tobe
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      09-25-2006, 05:48 AM
"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!

<< ================================================== ===== >>
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<< that may be imposed upon the taxpayer. >>
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