Our church (New Life CRC Highland, IN) has a parsonage. They are less popular than they used to be but some ministers like them (many others do not). Our previous minister lived in the parsonage (he left to take a new call in the fall) so it is currently unoccupied. We haven't decided if we'll retain it.
If the property was used for another purpose, such as renting it out, it would be excluded from Unrelated Business Income Tax (UBIT) based on IRS Publication 598. (If an exempt organization regularly carries on a trade or business not substantially related to its exempt purpose, except that it provides funds to carry out that purpose, the organization is subject to tax on its income from that unrelated trade or business.") General ministry outreach plans, though, would be consistent with the general purpose of the church and also be exempt from any taxation. You may also need to consider the potential impact to property taxes if the parsonage is used for a purpose outside the church's mission and what the local and state government requires.
If the parsonage were to be sold, there would generally be no effect on tax exempt status. As long as the church does not regularly participate in the business of selling property, a gain on the sale of a parsonage would not be taxable. However, if a church frequently sells property and is in the business of selling property to a customer, the church will be subject to UBIT.
As to how the congregation will take the news, you may want to check your church's articles of incorporation bylaws. Some require congregational approval before a sale. Even if not required, it might be wise to still solicit the congregation's perspective and explain any plans before they are executed.
Posted in: Does Your Church Have a Parsonage?
Our church (New Life CRC Highland, IN) has a parsonage. They are less popular than they used to be but some ministers like them (many others do not). Our previous minister lived in the parsonage (he left to take a new call in the fall) so it is currently unoccupied. We haven't decided if we'll retain it.
If the property was used for another purpose, such as renting it out, it would be excluded from Unrelated Business Income Tax (UBIT) based on IRS Publication 598. (If an exempt organization regularly carries on a trade or business not substantially related to its exempt purpose, except that it provides funds to carry out that purpose, the organization is subject to tax on its income from that unrelated trade or business.") General ministry outreach plans, though, would be consistent with the general purpose of the church and also be exempt from any taxation. You may also need to consider the potential impact to property taxes if the parsonage is used for a purpose outside the church's mission and what the local and state government requires.
If the parsonage were to be sold, there would generally be no effect on tax exempt status. As long as the church does not regularly participate in the business of selling property, a gain on the sale of a parsonage would not be taxable. However, if a church frequently sells property and is in the business of selling property to a customer, the church will be subject to UBIT.
As to how the congregation will take the news, you may want to check your church's articles of incorporation bylaws. Some require congregational approval before a sale. Even if not required, it might be wise to still solicit the congregation's perspective and explain any plans before they are executed.