Churches and religious organizations are almost always nonprofits organized under Section 501(c)(3) of the Internal Revenue Code. Because churches operate to serve people's spiritual needs, foster a sense of community and undertake charity, they are tax-exempt and allowed to accept tax-free donations. And while churches are not allowed to turn a profit, they can operate businesses for revenue, including rental properties.
Nonprofit organizations have boards of directors, but no owners. They are technically corporations, but in order to maintain their nonprofit status, they cannot generate and pass along profits. That means all revenues must be used for operation of a nonprofit organization. Accordingly, a church can spend its revenues on staff salaries, building upkeep, education and charitable programs.
Churches, like all other nonprofits, can own property and use it for a variety of purposes. Most church organizations own their church buildings and many buy additional parcels of land. Churches can operate rental properties and even businesses to generate revenues to fuel operations in keeping with a religious organization. In fact, rental income can provide a flow of funds that is more reliable and consistent than donations.
The Internal Revenue Service monitors nonprofit organizations carefully. It considers 501 (c)(3) status a privilege and requires organizations and their directors to maintain detailed accounting of revenues, expenses and assets to demonstrate that organizations are using money for charitable and social purposes and that directors and officers are not using their organizations as a front to evade taxes.
When a church sells off any real estate, including rental properties, it has to handle the proceeds in the same manner as all other revenues. Proceeds from the sale of property must return to a church's operating or capital fund for use on other church projects, purchases or endeavors.
Eric Feigenbaum started his career in print journalism, becoming editor-in-chief of "The Daily" of the University of Washington during college and afterward working at two major newspapers. He later did many print and Web projects including re-brandings for major companies and catalog production.