Tax Law (Questions About Taxes)/Church charging rent

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QUESTION: Hello,

My church is a non-profit organization (501-c3). However above the church is a 3 bedroom apartment they have been renting to one of the members for $400 per month. Is this legal? I am the secretary of the planning board and want to make sure my church doesn't get into any legal trouble

ANSWER: Shantel:

IRS requirement is it the market rate in your area.  If the rent is equal to or about the same as the other rooms in your area would rent for then it is.  If not the person living in the room that rents for a rate less than the market rate could on an IRS audit have income that has not been reported.

John

---------- FOLLOW-UP ----------

QUESTION: Thanks a lot John:

Just one more question. The tenant is paying way less than the usual three bedroom apartment with living and dining room. As I said she pays $400/month when the normal rate is $1200 and better. But my main concern is, is it legal for the church to rent an apartment out to anyone?  This is a monthly income for the church and it is not a "profit" persay but it is a profit if the church uses her rent to pay bills right?

Answer
Shantel:

The rent income is the same as the collection plate on Sunday.  Its not PROFIT until expenses are deducted from the income (rent + collection plate) - expenses = profit or loss.  Anyway I am sure you file a 990C information return at the end of the year.  I am sure all your income is spent.

John

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John L. Tidwell

Expertise

Unemployment tax law both state and federal; determination of employer employee relationship; the usual 20 commonlaw factors for making that determination; and what makes me a liable employer.

Experience

Over 20 years of field audit experience with a state agency

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none

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Education/Credentials
Degree in Accounting from Falls Business College

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