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Nonprofit Law/Taxes on parsonage rental

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Question
We have a church building where the main floor is used for Sunday services and the upstairs is used for parsonage. The pastor does not want to live there. Can the church rent out the parsonage, and use the rental income to pay a housing allowance to the pastor? Does this affect the tax­ exempt status of the property under a state law exempting parsonages from taxation?

Answer
I have in my profile that this free forum is only for general questions about IRS federal exemption issues of 501(c)(3) organizations. Your question about a state law exemption parsonages from property taxes is 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,I will give you some leads.

1.  A church may rent out the parsonage and the rental income will not be taxable to the church under federal income tax statutes unless the church building has some mortgage on it.  If there is such a mortgage then there is a sliding scale and , if you want to hire me to give you a written opinion on that issue, send me an email directly to my email address below and I will quote you my fees. But, in any case, the church may rent out the parsonage, and use the rental income to pay a housing allowance to the pastor, as long as the amount given to the pastor is not more than what is reasonable.

Normally, under State property tax exemption statutes, the portion of a church building that is rented out to non-exempt entities would be taxable. That is what appears to be the case in New Jersey as provided in N.J. Stat. Ann. § 54:4-3.6 which starts out:
--- Start of excerpt ---
The following property shall be exempt from taxation under this chapter: all buildings actually used for colleges, schools, academies or seminaries, provided that if any portion of such buildings are leased to profit-making organizations or otherwise used for purposes which are not themselves exempt from taxation, said portion shall be subject to taxation and the remaining portion only shall be exempt
-- End of excerpt ---
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Harvey Mechanic
Attorney at Law
Harvey108@hotmail.com

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. For me to consider your individual situation and how the law applies, I would need to gather more information.

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Harvey Mechanic

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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 Harvey108@hotmail.com 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 "site:allexperts.com/q/nonprofit" without the quotes and then add your search terms before hitting enter.

Experience

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.

Education/Credentials

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

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


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