AboutHarvey Mechanic Expertise US Federal tax issues of nonprofit 501(c)(3) public charities only. Establishing and maintaining legal requirements for such non-profit organizations in the United States, including Internal Revenue service filings and requirements. I will not be working on this free forum to answer questions about Nonprofit's unrelated or for-profit businesses or how to fill out forms. This forum is only for general questions about federal tax law, not as the law applies to your specific situation.
To search my previous answers you can do a Google search: site:allexperts.com/q/nonprofit [with your other search terms appended].
Experience I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar.
Education/Credentials B.S. Columbia University in New York City, 1970
J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude
Question We are a set up as a religious institution under the NY Not-For-Profit Law. We have an opportunity to rent our parsonage. It would be our only "income-generating" activity, and all other income is through donations/gifts. If we do rent it, would it affect our status? If not, would the rent be taxable if it exceeds the actual cost of upkeep/utilities or would limiting to that amount be OK? Finally, would collecting rent subject the property to property taxes? Thank you very much for any help you can give.
Answer I have in my profile that this free forum is only for relevant IRS federal exemption issues of 501(c)(3) organizations. Your property tax issue is a state law issue.
As to the federal issue relating to your non-religious activity of renting your facility, see IRS Publication 598 "Tax on Unrelated Business Income of ExemptOrganizations" at
www.irs.gov/pub/irs-pdf/p598.pdf
which explains that such activities are generally taxable.
See page 9 of
www.irs.gov/pub/irs-pdf/p598.pdf wherein we see "Rents from real
property... are excluded in computing unrelated business taxable
income." However, see pages 14-19 on Unrelated debt-financed
property. There you will see that, if there has been recently
debt-financing (like a mortgate) rents are, at least to some
extent, unrelated business taxable income.
If the property is not subject to such debt-financing then the renting does not jeopardize your 501(c)(3) organization status with the IRS and is not taxable. If it is subject to such debt-financing, then it is taxable but, as you can see below that area, your expenses may be deducted in computing the tax. As long as your religious institution maintains its substantial religious activities, the renting of the parsonage will not jeopardize its 501(c)(3) organization status with the IRS even though you may need to pay taxes.
Harvey Mechanic, Attorney at Law -
Harvey108@hotmail.com
