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Nonprofit Law/Question About A House Owned Rental


My family will be moving into my father-in-laws church owned house next week in Texas. We will be paying rent while living there, but he has also informed us that he needs to have a church service there in order to keep it tax free. Is this true? From my understanding as long as the church owns it then it should be tax free regardless if they have a service there or not. The house has no debt on it (mortgage or any other loans).

I have in my profile that this free forum is only for general questions about IRS federal exemption issues of 501(c)(3) organizations. It appears that you are inquiring about state real property tax exemption. Your issues are controlled by state law and states may differ somewhat with how they would treat such issues. Even though this forum is not for such state law issues, generally I can inform you that States do not exempt a house from property taxes just because it is owned by a church. I will direct you to:
"in Texas, for example, among other things churches may seek exemption of real property owned by the church and used as a place of regular religious worship but only as to that portion of the property reasonably necessary for engaging in religious worship."  For the exact code sections see and the following sections.

If you are asking about federal taxes, there is no tax unless the property is subject to debt-financing (like a mortgage). on page 9 of we see "Rents from real
property... are excluded in computing unrelated business taxable
income." However, on pages 14-19 as to Unrelated debt-financed
property, we see that, if there has been recently  debt-financing
(like a mortgage),  rents are, at least to some extent, unrelated
business  taxable income. There are exceptions to that exception
listed below in that IRS publication, for example when the rental
amount is computed from net income.

Harvey Mechanic
Attorney at Law

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.

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Harvey Mechanic


I am an attorney and I volunteer time to answer general questions about U.S. Federal income tax issues of nonprofit 501(c)(3) public charities only. Those questions could be about 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 possible 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. If you do not make your question public then I will not be spending much of my donated time on answers that would not benefit the public. If you have other questions, please contact me at I will reply from my email. In any case, do not reveal confidential information to me until after I have contracted with you to provide personal legal services. My responses on this forum are intended to be general statements of law, should not be relied upon as legal advice, and do not create an attorney/client relationship. For me to consider your individual situation and how the law applies, I would need to gather extensive information about the situation. To search my previous answers you can do a Google search by "" without the quotes and then add your search terms before hitting enter.


I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar and I have maintained my status with the Bar since that time.


B.S. Columbia University in New York City, 1970

J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude.

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