Can Church make a "profit" on property lease?


C

Chuck W.

Our church, a bonafide 501c3 of course, owns a parsonage. The
parsonage is currently vacant. Someone on our property committee is
suggesting that we can only rent "at cost," and that we cannot "make a
profit" on a lease because we are a non-profit organization, but can
only recover expenses.

Now that doesn't seem right to me, as it must be that non-profits can
rent property at market rates without jeopardizing their non profit
status...?

Thanks for any thoughts on the matter,

Chuck W.
 
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T

Thomas Healy

Our church, a bonafide 501c3 of course, owns a parsonage. The
parsonage is currently vacant. Someone on our property committee is
suggesting that we can only rent "at cost," and that we cannot "make a
profit" on a lease because we are a non-profit organization, but can
only recover expenses.

Now that doesn't seem right to me, as it must be that non-profits can
rent property at market rates without jeopardizing their non profit
status...?

Thanks for any thoughts on the matter,

Chuck W.
You can rent the parsonage at whatever the market will bear. What you need
to do is contact your county assessor and inform them that the parsonage is
now not being used in an exempt purpose. You will need to pay property tax
on that property while it is not being used for religious purposes. Many
downtown churches will lease parking space under similar circumstances.
 
C

Chuck W.

Here's the interesting part. We're renting to a retired pastor. Is
that not for "religious purposes?"

Thanks, Tom!!
 
C

Chris Gunn

Our church, a bonafide 501c3 of course, owns a parsonage. The
parsonage is currently vacant. Someone on our property committee is
suggesting that we can only rent "at cost," and that we cannot "make a
profit" on a lease because we are a non-profit organization, but can
only recover expenses.

Now that doesn't seem right to me, as it must be that non-profits can
rent property at market rates without jeopardizing their non profit
status...?
Howdy Chuck,

There is nothing in the non-profit regulations that forbids a non-profit
from having thousands of dollars sitting in their bank account. They are
expected to support themselves by earning more than they spend so they can
expand.

What is regulated is what is done with those profits. Basically, other than
paying salaries, the profits are not to end up being transferred to another
company or individual except for services rendered. Liquidating a
non-profit is really messy.

How your local property tax laws are written is a separate issue. For that,
you need to ask them the questions and then check the laws yourself to make
sure you got a valid interpretation of them.

If they are contrary to the federal regulations, it's your option if you
want to fight them or just go along with it.

Chris
 
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B

Bluepen

No, his retired status as a preacher has no bearing. If the church
itself or one of its employees is not using it, then it is a
non-exempt purpose and is taxable.
 

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