We own property that we allow the church to use. our church pays all expenses. property is not for profit. how do we file the property and deduct interest?

[jbemd57]

I own property that we rent at no profit to our church.  I am the pastor and we have a pass thru llc that is the owner of the property.  I hope this makes sense.  The church pays the mortgage and all expenses in association to the church.  We only tithe and give offering.  We receive no income from church.

[SusanH · Accepted solution]

Regrettably, you cannot deduct mortgage interest or other property expenses that you do not pay. 

You have what is considered a Not-for-Profit rental. Here are the instructions on how to report it.

To report Not-for-Profit  (NFP) income in TurboTax

• Click on Federal Taxes
• Wages and Income
• You may need to click Jump to Full List, Show me everything or I’ll choose what I work on depending upon your situation and the TurboTax version you are using.
• Scroll to the very bottom; Less Common Income; Click Show more (if start isn’t displayed)
• Click Start across from Miscellaneous Income, 1099-A, 1099-C
• Scroll to the Bottom and Click Start across from other reportable income
• At the “Other Taxable Income” screen, enter your description – Not for Profit Rental and then amount of income you received. In your case, this is the amount of principal reduction on the mortgage loan during the year. 

You can also enter your NFP expenses as part of Miscellaneous Itemized Deductions.

If you choose to enter your NFP expenses:

• Go to the Federal Taxes tab
• Deductions and Credits
• Click “I’ll choose what I work on” 
• Scroll down to Other Deductions and Credits 
• Click Other Deductible Expenses Start.
• At the “Less Common Expenses” screen, say yes.

On the next screen, you can enter your NFP Rental expenses; these are expenses that you actually paid, not those that were paid by the church.

Some additional information

Your NFP Expenses amount will go to line 23 of your Itemized Deductions Schedule A. If they are more than 2% of your Adjusted Gross Income, they will be included in your Schedule A.  If your standard deduction is higher than your Schedule A (Itemized deductions), you will use the standard deduction instead; TurboTax will default to the higher deduction.

Here are the 2015 standard deduction amounts for each filing status: 

• Single or Married Filing Separate - $6,300
• Married Filing Jointly or Qualifying Widow(er) - $12,600
• Head of Household - $9,250

[jbemd57]

So this year, if my wife and I pay the mortgage and condo fees, can we write it off then ?

[jbemd57]

And still slow the church to use the space.

[SusanH]

You can deduct the mortgage interest only if it's for a second home that you use. You can deduct the property taxes if you actually pay them. You can also deduct the expenses if it is a for-profit rental as part of the Schedule E income and expenses.

So in short, if you collect rent from the church, pay the mortgage, property tax and other expenses, you can claim it as a rental property and deduct the expenses such as Home Owners Fees, maintenance, etc.

Please review Publication 526 Charitable Contributions <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/p526.pdf">https://www.irs.gov/pub/irs-pdf/p526.pdf</a> for more information on what you can and cannot deduct.

[dhowell7]

Clarify please...

I am the senior pastor of a church. I receive a housing allowance and report it as such on my w2 from the church & subsequently report it as such on my personal taxes. I pay all the mortgage, insurance, property taxes, upkeep, maintenance, etc. The house is used a significant amount for ministry purposes in conjunction with the church vision.

If I rent the property to the church, and I continue to pay all the same expenses, would I still have to pay property taxes? The church is established as a non-profit corporation with 25 years of history. It is not a 501c3.

Is there a particular amount or calculation that the church would need to pay for the rent?

Thanks - D

[DianeW777]

It depends. If the property is in your name, you would continue to be liable for the property taxes and not the church. The rent you would charge the church is not something we would respond to and would suggest you seek guidance from a professional such as an attorney.

As far as your housing allowance, if you spend the money you receive on housing any money you do spend is not subject to personal income tax even though it is subject to self employment tax (social security and medicare taxes).

• When entering your W-2 be sure to follow the instructions below.

1. the screen 'Let's check for uncommon situations', selected Religious employment > Continue > Select 'Clergy' on 'Let's dig into your religious employment.
2. Continue to enter Housing allowance and Qualifying expenses (any amount in excess of your costs would be included for personal income tax) > Continue
3. Select 'Pay self employment tax on my wages and housing allowance' > Continue
4. Complete the rest of your income, credits and deductions