According to IRS Publication 598, “Renting Real Estate. are excluded from the calculation of the non-contiguous taxable income of corporations. Rents from personal property are not excluded. The IRS cites exceptions to this rule. An exception is that, if the rent is financed by debt, the church may be liable for the UBIT. CONTRACT OF USE OF THE PRESBYTERY Note: Verification / signature within one month after a change in the presbytery – send a copy to the district office 1. This contract for the use of the presbytery (“Agreement”) applies from the _____between________________________________________________ 2nd RECTORATE. As part of the Pastor`s remuneration to be paid by the Church and as indicated on the applicable Pastoral Support Form, the Church hereby grants the Pastor the free use and occupation of the residence at_____________________ in_________________________, Missouri (the “Rectory”) for the entire duration of the Pastor. The “presbytery” includes the entire physical structure located at and around the above address, including appliances, equipment and accessories that are part of the physical structure, parcels, recreational areas and facilities, garages and outdoor buildings. 3. USE. The pastor agrees that the presbytery be used and inhabited as a residence for the pastor and his family and may not be used for any other purpose; provided, however, that the pastor is allowed to entertain guests for a limited time. The church ensures that the rectory can continue to be used as the pastor`s residence, including an adequate budget for maintenance and repairs.
4. POLICY AND RECOMMENDATIONS. Unless otherwise agreed in writing by the District Superintendent (DS), the Pastor and the Church, the parties agree to abide by the Guidelines for Rectories and Cash Housing Allowance, as well as the Guidelines and Recommendations for Residences provided by the Church as adopted by the Conference and recorded in the Journal of the Conference. The policy of parsonagues and cash housing allowance is incorporated by reference into this Agreement and forms an integral part of this Agreement. 5. PETS. The pastor and the church acknowledge that the pastor has _______ pets listed in Appendix A, which is updated annually during the annual inspection. The number of pets must not exceed the legal limits authorized by the competent municipality and/or the Owners` Association (HOA). The pastor acknowledges that any damage to the presbytery caused by pets is the sole responsibility of the pastor and will be treated in the same way as other forms of damage in paragraph 7 below. 6.
PROPERTY INSPECTION. The pastor agrees that the pastor and church officials jointly inspected the rectory prior to signing this agreement and determine that the rectory is in good condition, safe and clean and in good condition. All items that need to be repaired by the Church are listed in Appendix A, which is attached to this Agreement. The Church undertakes to deal with these points within the time limits agreed with the pastor and also set out in Appendix A. Pastor further agrees that Pastor will keep the rectory free of debris, garbage or dirt for the duration and after the expiration of this agreement. The pastor acknowledges that the rectory contains the terms and conditions set out in Appendix A, all of which will be maintained by the pastor and returned to the owner upon handover. Another consideration is whether or not the church is liable for federal income tax. The same scenario above is questioned if the income comes from a church employee and the lease of the rectory is incidental and reasonably necessary for the church`s religious purpose. In general, the fair rental value of the property is a matter of facts and circumstances based on the local real estate market. If the pastor rents his house, the amount of rent would be presumed to be proof of fair rental value (assuming the lease was an “arm`s length” transaction). Other methods to justify fair rental value could include calculations and written documents from similar property listings with local brokers, checking the rent paid for comparable neighborhood apartments, or reviewing newspaper listings for similar apartment rents in the community.
Perhaps the best justification would be a letter appreciating the fair rental value of the property written by a broker familiar with your property and other rental properties in your community. Clergy Financial Resources www.clergyfinancial.com Clergy Financial Resources is a national accounting and financial organization that has served churches and clergy since 1980. They have unparalleled tax expertise on the complex issues associated with clergy tax law, clergy taxes, clergy compensation, and Church payroll. Clergy Financial Resources is a valuable resource for clergy, churches and denominations. However, there is no fixed rule to apply. As soon as the pastor ceases to live in the presbytery, the tax exemption is in danger. The argument here is that once the rectory is leased to a third party, its income is not reasonably necessary for the purposes of the church and is primarily used and used for them. Indeed, it can be difficult to demonstrate that a house rented and not used for religious purposes is reasonably necessary for religious worship. Clergy Financial Resources serves as a resource for clients to analyze the complexities of clergy tax law, Church payroll, and human resources issues. Our professionals are committed to helping our clients stay abreast of tax news, developments and trends in a variety of areas of expertise.
It does not matter whether the money is used for ecclesiastical purposes. IRS Publication 598 states: However, a second concern must be expressed that is not addressed in the question: Will the rectory lose its status as an exemption from local government property tax rolls? We have worked with churches in similar situations in several states. .