There are 3 Major Areas You Need Take Care ofBy JODI SMITH
Director of Connectional Resources
I often receive questions in my office about renting the church facilities, including parking lots, to other entities, both nonprofit and profit.
I welcome the questions because a little caution up front can save congregations from surprises and headaches later.
There are three major issues to consider when renting out your facilities, even for a single event: property taxes, federal income taxes, and liability insurance.
This is the more expensive exposure for your church.
The church or ministry should further the ministry of your church.
The church that owns the property must be the predominant user.
The revenue received must be spent on the facility: cleaning, remodeling, and improvements, but not utilities.
If you are only renting the facility and not providing services and the facility is debt-free (that is, no mortgage), there is no income tax on the rental income. If you have a mortgage on the property, all rental income is taxable and the church needs to file a Form 990T.
If you are providing services and the rent you charge is more than 10 percent of the rental value of whatever you are renting (the building or tables and chairs, for example), you must file a Form 990T Unrelated Business Income Tax.
When renting out your facility, I highly recommend:
A written lease agreement.
Either an exclusion in your general liability policy such that the renters get their own or charge them for the extra in yours. If you include a renter in your insurance, you will need to have the agreement added to your policy as an additional named insured.
If the renters have their own policy, they will need to provide you with a copy of that policy and list you as an additional named insured so that you are notified should they drop the insurance.
Renters will need to be ministry-safe compliant. Otherwise, anything that happens in their ministry on your property can result in you being named in a lawsuit. You will probably be named anyway, but having these provisions in place puts you in a stronger position.
I am not an attorney, and I am not providing legal advice on this matter. My goal is to provide an awareness of potential pitfalls.