Renting Our Home for Church Use

[V Girl]

We are renting our home and property to our church.  The church pays us $400.00 in rent per month.  The confusing part to us is that we live in the home as well.  The church meets our our home Wednesdays from 5:30 pm to 9:30 pm and Sundays from 9:00 am to 1:00 pm.  However, there is a lot of time spent before these services to prepare and maintain our home.  Sometimes we host church workdays on Saturdays before Sunday service and host board meetings at other times during the week.  My question is this:  We've always itemized deductions due to large mortgage interest payments and supplies and dollar contributions to our church.  In order to host the services at our home we spend large amounts of money on food supplies, cleaning supplies, maintenance, equipment and more.  Now that the church is paying us rent, which in no way covers our expense, do we itemizes deductions as charitable deductions or is it more beneficial to list them as rental expense?  If so how do i file?  

[Anonymous]

my opinion is you don't have a rental .   for one thing you say the rent doesn't cover the costs.  so you have an "enterprise" not entered into for profit which would give the IRS the right to deny any losses reported on schedule E.  you would also fail the non-personal usage test, which would also deny you a deduction for excess expenses.

on the other hand, for those expenses that can be directly linked to the church services, reduced by the rent paid,  would be a charitable donation reported on schedule A.  even then I'm not certain all of those would qualify.   providing meals, which a church doesn't usually do, probably would not be an eligible expense.   cleaning - that would have to be done anyway.                  your  time  - no way.     

I would suggest waiting for other to post their opinions. 

[Carl]

I see nothing here that even comes close to rental income. Looks more like SCH C business income to me, since you are providing recurring services that can be directly attributed to the entity paying you. One example is, if you are feeding the people, then that's deductible provided the food you purchase is solely for attendees. The cleaning doesn't count, because that's something you would do anyway.

I don't agree with your expenses being claimed as a donation, because at best only 50% of your donations are tax deductible. Whereas if you report this as a SCH C business, all of your expenses that you can "prove" were 100% for the business, are 100% tax deductible from the income received. Now I don't know how many people are attending these gatherings every Wednesday. But I would imagine it's enough to justify $400 worth of food, four wednesday's a month.

Now if I'm right at you are "in fact" spending more than $400 a month to host these gatherings, and those expenses can be directly attributed to the church, I personally would not bother reporting the income at all. I would look at it as the church providing me the funds of $400 a month to pay for those things necessary for hosting the gatherings. In other words, when it comes to the $400 a month, I'm just a "pass through" entity.

Then, for anything over $400 (again, that I can prove are directly attributed to the church) I would claim as a charitable donation to the church.

If you take this route, make sure the church understands this and inform them to please "NOT" issue you a 1099-MISC. If they issue you a 1099-MISC, then you *HAVE* to report the income. Additionally, if they insist on issuing you a 1099-MISC, they need to report the money they paid you in box 7, and ***NOT*** in box 1.