Jump directly to the content

The IRS Addresses the "Neighborhood Land Rule"

What a church must know about income from unused property.

IRS Letter Ruling 201206018

Background. Many churches rent some or all of their property. For example, a church purchases several homes adjacent to its property to facilitate future expansion. The church has no immediate plans to expand its facilities, so it rents the homes. One issue that arises in such cases is the application of the federal unrelated business income tax, which is a tax on the net income generated by a church or other public charity from an unrelated trade or business.

In general, rental income received by a church is exempt from the unrelated business income tax, but an exception applies with debt-financed property. Section 514 of the tax code states that income from dividends, interest, annuities, royalties, rents, and capital gains and losses must be included in the definition of unrelated business taxable income to the extent it derives from debt-financed property. The ...

Join now to access this member-only content

Become a Member

Already a member? for full access.

Related ResourcesVisit Store

20 Finance Questions Churches Ask
20 Finance Questions Churches Ask
Richard Hammar answers relevant tax and finance questions for church leaders.
Managing Church Facility Use
Managing Church Facility Use
Find insights to equip your church to host members and strangers.
Planning a Church Building Project
Planning a Church Building Project
Learn about zoning laws, property sales, church construction, financing, and more.
Politics and the Church
Politics and the Church
Tax and legal guidelines faith-based organizations need to know before jumping into the political fray.