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Can owner of church receive payments from sale of house?

Your Legal Questions Answered

Can owner of church receive payments from sale of house?

I own a 501(c)(3) church and a house that I have owned for several years as an investment. Can I donate the house to the church, have someone buy it from the church, and take payments from the church after the sale?

Let’s start with the fact that you can’t “own” a 501(c)(3) church or any other charity.  You may control it, but you don’t “own” it.  And when you think you own it, you are likely to get yourself into trouble. The Internal Revenue Service and state Attorneys General don’t like that kind of thinking.

You can give the house to the church and claim a full fair market value charitable contribution deduction (less the value of any outstanding mortgage).  That might generate a nice deduction and avoid a capital gain that would be due if you sold it directly.

The church could sell the house to a third party, but it can’t give you the proceeds.  If you had an agreement to be paid the proceeds, you would not have donated the property and would not have been able to claim the full deduction.  You would have sold it and would have had to pay tax on at least a part of the capital gain.

If you actually give the house to the church, the church can pay you reasonable compensation out of the proceeds of the sale, but only for services actually rendered to the church.  You would have to declare that as ordinary income and pay income tax on the payments, none of which would be capital gain. 

Don’t try to get too cute with your transfer.  If you do, and don’t report it correctly, you could get yourself, and perhaps “your” church, into a lot of trouble.

Tuesday, July 24, 2018

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