If you own a church, and you are considering whether to rent the property when you are not using it, you cannot be wrong to do such.
That is, a church can legally rent space to a for-profit business if they so desire. As a matter of fact, some churches usually rent their properties out to event planners or wedding planners who may want to use them as venues for their events.
The truth is that some churches find it difficult to meet up with their ongoing expenses hence renting out their space to a for-profit business is just the way to go. By doing this, they will be able to generate enough revenue to meet their recurring expenditures.
What are the Tax Implications?
Of course, there are tax implications when you are actively involved in a business in the United States of America. But since churches are registered as a 501(c)(3) non-profit organizations, they are exempted from paying taxes on their income because the income is treated as donations including the rent they get from renting a space in the church facility.
This is applicable only if the rental agreement is not a long-term thing but a one-off or short-term rent agreement (event use agreement).
The only reason why the income generated from renting a space from a church can be taxable is if the rental agreement (actually lease agreement) is long-term and when the church is actually competing with businesses that are into renting spaces in the city.
In such cases, the church board of trustees will meet to review the contract agreement to see whether the income generated from the rent should be taxable or not. They will review it based on the church by-law.
Aside from that, the purpose the income serves will determine whether it should be taxed or not. For example, if the income generated from the rent is to further the mission of the church, then it won’t become a taxable income. But if the income generated from the rent is used for investment purposes or to start another business, then the income will be subjected to tax.
Factors to Consider Before Your Rent Your Church Space to a For-Profit Business
If you have plans to rent your space as a church, then you would need to consider some factors before going ahead with your decision.
What Does the Constitution of Your Church Say
Everything a church does should be regulated by the constitution of the church hence if it is not in your church’s constitution that you can rent out free spaces in your property, then you should not consider renting out a space in your church’s property.
But if there is no clear-cut rule on whether to rent out space on your church’s property, then you may want to consult with the board of directors of the church.
You Should Make Sure There is no Clash of Interest
Another factor you should consider if you want to rent out space in your church property is to be certain that there won’t be any clash of interests. For example, if you choose to rent out your church space to another church, there will likely be a clash of interests.
That is why churches who are into renting their church space usually rent it out to event planners and for weddings or community sales or trade fairs et al.
Will Your Property be Exposed to Damages
Lastly, another factor that you should consider if you want to rent out your church space to a for-profit organization is to be sure that your church space will not be exposed to any form of damage. Note that some activities may cause some damage to the church property and that will result in spending extra income from the church’s purse to fix whatever damages the renters inflicted on your property.
Pros of Renting a Church Space to a For-Profit Organization
One of the advantages of renting a space in your church property to a for-profit organization is that you will generate extra income that can be used to further the mission and vision of the church. Trust me, quite a number of churches struggle to meet up with their monthly ongoing expenditures, and getting extra income from short-term rentals will come as a relief to them.
Another advantage a church stands to gain when they rent out church space to a for-profit organization is that the church will receive free publicity.
This is so because once a for-profit organization rents out a church space for their event, they would want to put the church address on their flyers and website or on other advertising mediums. With that, it will be easier for people to know about the church.
Cons of Renting a Church Space to a For-Profit Organization
One of the major disadvantages of renting your church space to a for-profit organization is the likelihood of your property being damaged. As a matter of fact, there are some events that can cause damage to your property, although you have the right to decline to rent your church space to any organization that can cause damage to your property.
Another disadvantage of renting your church space to a for-profit organization is that you may likely lose your tax status. This is why it is very important to consult with your lawyer or the church board to be sure you are doing the right thing.
In as much as it is a good thing to generate additional income for your church by renting out a space from the church property, it will be a wise decision to first consult with experts so that you won’t be working against the law of your country or the law that governs how a church should operate.